Question

Financial Accounting:

A: Focuses on the future and includes activities such as preparing next year's operating budget.
B: Does not need to comply with GAAP (generally accepted accounting Principles)
C: Is primarily oriented to external stakeholders, such as investors, creditors, regulators and tax authorities
D: Is prepared for the use of department heads and other employees
Banner Company produces 5 products. If the variable cost of one product increases, and using the assumptions made in the text about multiproduct cost volume profit analysis, the effect of this change on the breakeven quantities required for Banner Company to breakeven will:
a. This question cannot be answered without more information
b. Require that the sales of that product increase while the sales of the other products remain constant
c. Require that the sales of that product increase while the sales of the other products decrease
d. Require that the sales of all products increase

Answer 1

If the variable cost of one product increases, the sales of that product must increase while the sales of other products remain constant to maintain the breakeven point for the Banner Company.

Step-by-step explanation:

The effect of an increase in the variable cost of one product on the breakeven quantities required for Banner Company to break will require that the sales of that product increase while the sales of the other products remain constant.

This is because the breakeven quantity is the point at which total revenue equals total cost, so if the variable cost of one product increases, the sales of that product must increase to cover the higher cost and maintain the breakeven point. The sales of other products do not need to decrease or increase as long as the sales of the product with the increased variable cost can cover the higher cost and reach the breakeven point.