Fixed no, variable yes (or else they would just be profitable). An explanation with an example can be found here[0]. But let's throw out some easy (but comple

Fixed no, variable yes (or else they would just be profitable). An explanation with an example can be found here[0]. But let's throw out some easy (but completely false numbers). Assume: The fixed cost for the entire operation for one month is $1000. The operation makes 1000 widgets in one month. A widget can be sold for $2. Analysis: If the company sells all 1000 widgets that it made in a month, then it will have revenue of $2000. If each widget had no variable costs, then each widget sold 'contributes' $2 to paying off the fixed costs of the company. $2 is greater than zero, so the company has a positive contribution margin. Take the same assumptions as listed above, but the variable costs for each widget is $3. If the company sells all 1000 widgets, then it will have a revenue of $2000. However, each sale of the widget contributes -$1 towards the fixed costs of the company. Thus the company has a negative contribution margin. So the first situation boils down to "we sold a widget for more than it costs to make", and the second situation boils down to "we sold a widget for less than it costs to make". Where "costs to make" includes just the variable costs. Which is what the article implies, "SpoonRocket had reached a positive contribution margin — it was selling meals for more than it cost to cook them." Note also having a positive contribution margin also doesn't mean the company will ever realistically be profitable. Imagine a scenario where the fixed costs are $100.000 per month, and the contribution margin of each widget was $0.01 (ex: variable costs per widget $9.99, sale price $10). Each widget has a positive contribution margin, but the company would need to sell 10.000.000 per month to actually cover the fixed costs and become profitable. Edit: had fixed/variable backwards on the first line. [0] - http://www.accountingcoach.com/break-even-point/explanation/2 http://www.accountingcoach.com/break-even-point/explanation/...