How many sales cover the costs?
Calculate revenue, costs, contribution margin, and the sales needed to avoid a loss.
A fictional market stall pays a fixed daily cost of $140 and initially spends $5 per item sold. It sells each item for $12, starting at 30 sales a day. Change one assumption at a time. All produced items are sold; sales volume is chosen separately from price.
Print creates the fixed example worksheet below. “Print with teacher answers” adds a separate answer page. Use your browser’s Save as PDF option to download it.
Change one assumption.
Predict what will happen, adjust an input, then use the results to check your reasoning. Sliders work with arrow keys.
What the numbers mean
Contribution margin is $7 per item. At least 20 whole-item sales avoid a loss; the exact threshold is 20 items. Price and sales are independent inputs here; a price increase does not guarantee the same number of buyers.
Show calculation table
| Measure | Value |
|---|---|
| Revenue ($) | 360 |
| Fixed cost ($) | 140 |
| Variable costs ($) | 150 |
| Profit / loss ($) | 70 |
| Contribution per item ($) | 7 |
| Whole items needed to avoid loss | 20 |
Use the terms precisely.
Open a term to read its meaning, then use it in your explanation.
Revenue
Money from sales before subtracting costs: price × quantity sold.
Fixed versus variable cost
Fixed costs do not change with sales volume in this range. Total variable cost rises with items sold.
Contribution margin
Selling price minus variable cost per item. It contributes toward fixed costs and then profit.
Break-even and profit
Profit here is revenue minus the listed costs. With positive contribution margin, continuous break-even quantity is fixed cost ÷ contribution margin; whole-item sales needed are rounded up.
- Revenue
- Money from sales before subtracting costs: price × quantity sold.
- Fixed versus variable cost
- Fixed costs do not change with sales volume in this range. Total variable cost rises with items sold.
- Contribution margin
- Selling price minus variable cost per item. It contributes toward fixed costs and then profit.
- Break-even and profit
- Profit here is revenue minus the listed costs. With positive contribution margin, continuous break-even quantity is fixed cost ÷ contribution margin; whole-item sales needed are rounded up.
Work through the starting example.
These questions use the default settings, even if you changed the interactive lab. Show your calculations and explain one assumption behind your answer.
Starting inputs: Selling price per item: $12; Variable cost per item: $5; Fixed daily cost: $140; Items sold per day: 30 items.
Name: __________________________ Date: ______________
- At the defaults, calculate revenue, total cost, profit, and break-even sales.
- Keep costs unchanged and lower price to $10. How many whole-item sales are needed to avoid a loss? What is profit at 30 sales?
- Set price equal to variable cost while fixed cost remains $140. Can increasing sales remove the loss? Explain.
Try a new case
Find a case where the calculated break-even quantity is not a whole number. Explain why rounding down leaves a loss.
Exit ticket
What changed, what stayed fixed, and which term helps explain the result?
A 35 minute teaching plan
Use 5 minutes to introduce the question and vocabulary, 10 to predict and test inputs in pairs, 12 for the worksheet, 5 to compare explanations, and 3 for the exit ticket. Without devices, use the printed starting case and calculate changes by hand.
Look for a correct calculation, precise terminology, and an explanation that respects the model’s limits. For the open challenge, accept different cases when the arithmetic and reasoning support them.
Open teacher answer key
- Revenue = 12 × 30 = $360. Costs = 140 + 5 × 30 = $290. Profit = $70. Contribution margin = $7; break-even = 140 ÷ 7 = 20 items.
- Contribution margin is $5, so 140 ÷ 5 = 28 items break even. At 30 items, profit = 300 − 290 = $10. The model does not predict whether customers will buy more after a price cut.
- Each sale contributes $0 toward fixed costs. The $140 loss remains at every quantity. If price is below variable cost, additional sales increase the loss.
Teacher answer key: Business costs & break-even
- Revenue = 12 × 30 = $360. Costs = 140 + 5 × 30 = $290. Profit = $70. Contribution margin = $7; break-even = 140 ÷ 7 = 20 items.
- Contribution margin is $5, so 140 ÷ 5 = 28 items break even. At 30 items, profit = 300 − 290 = $10. The model does not predict whether customers will buy more after a price cut.
- Each sale contributes $0 toward fixed costs. The $140 loss remains at every quantity. If price is below variable cost, additional sales increase the loss.
For the challenge and exit ticket, credit correct calculations, a clearly stated assumption, and precise use of a relevant term. Different supported examples are acceptable.
Where the model stops
No inventory losses, capacity limits, taxes, financing costs, or demand response are modeled. The profit measure includes only listed costs and is not a complete accounting or economic profit estimate.
Further reading: SBA: break-even analysis. These fictional activities are original to World Economy. Reference links do not imply endorsement.
World Economy · losttofound.org/classroom/labs/business-decisions. An adult educator may print or privately share this free activity with their own learners. Keep the source attached. No resale or public rehosting.