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Iwas going through a question on dental health partnership, where besides its usual income, it also recieved other income under fixed term contract. The question asked to calculate the percentage of maximum capacity required to breakeven. I noticed that this other income was deducted from both fixed costs and contribution. My question is why was it deducted from fixed costs, what is the relationship.?
The reason is that if the capacity changes then the other revenue and the variable costs will change. However the income from the contract is fixed and also the fixed costs are (obviously) fixed.
So the fixed part of the profit is the contract income and the fixed costs. The variable part is the normal income less the variable costs.
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