1. What are MML’s total annual fixed costs and contribution rate?
2. What total revenue does MML require to break even?
3. What will be next year’s net income based on revenue forecast to be $875,000?
Classifying individual costs as either purely fixed or purely variable can be problematic, especially when a firm produces more than one product. Rather than determining FC and VC by analyzing each cost, you can use an income statement approach for estimating a firm’s FC and average contribution rate, CR.