A company has fixed costs of $900 and a per-unit contribution margin of $3. Which of the following statements is true?
A) Each unit "contributes" $3 toward covering the fixed costs of $900.
B) The situation described is not possible and there must be an error.
C) Once the break-even point is reached; the company will increase income at the rate of $3 per unit.
D) The firm will definitely lose money in this situation.
E) Each unit "contributes" $3 toward covering the fixed costs of $900 and once the break-even point is reached, the company will increase income at the rate of $3 per unit.

Question

Quizplus · Accepted Answer

Options A and C are both correct and are effectively combined in option E. Each unit sold contributes $3 towards covering the fixed costs. Once those fixed costs are covered (the break-even point), each additional unit sold increases income by $3, the per-unit contribution margin.

A Company Has Fixed Costs of $900 and a Per-Unit