Final answer:
When sales price, variable expenses, or fixed expenses change, they affect the contribution margin and breakeven point. To compute the new contribution margin and breakeven point, you can use the new sales price, variable expenses, and fixed expenses.
Step-by-step explanation:
In preparing for changing business conditions, firms need to consider various factors such as increasing costs, pricing pressures, and sales price changes. When the sales price changes, it affects the contribution margin. The contribution margin is the difference between the sales price and the variable expenses per unit sold. To compute the new contribution margin, you need to subtract the new variable cost per unit from the new sales price per unit. To compute the new breakeven or target using the new contribution margin, you divide the fixed costs by the new contribution margin per unit or by the new contribution margin ratio.
If the variable expenses change, it also affects the contribution margin. To compute the new contribution margin, you subtract the new variable expenses per unit from the sales price per unit. Then, to compute the new breakeven or target using the new contribution margin, you divide the fixed costs by the new contribution margin per unit or by the new contribution margin ratio.
However, if the fixed expenses change, the contribution margin remains the same. It is only the breakeven point that changes. To compute the new breakeven or target using the new fixed cost total, you divide the new fixed cost total by the contribution margin per unit or by the contribution margin ratio.