The difference (more than zero) between the product's selling price and its total variable costs is known as the contribution margin. For instance, the contribution margin is $110 if a bag sells for $125 and its variable cost is $15. The fixed costs are somewhat mitigated by this margin. Your total variable cost is divided by the number of units produced to determine your average variable cost. Generally speaking, reduced fixed costs result in a lower break-even point—but only provided variable costs do not exceed sales income.