Question

LO 3.3When fixed costs decrease and all other variables remain unchanged, the break-even point will ________.

remain unchanged
increase
decrease
produce a lower contribution margin

Answer 1

decrease

Step-by-step explanation:

Break-even point is use to determine the minimum number of units a company needs to sell in order to fully cover the fixed costs. The formula for break-even point is ;

Break- even point = Fixed cost/ (Selling price - Variable cost)

When fixed cost(FC) is decreased while variable cost (VC) and selling price is kept at the same level, the numerator will be smaller making the break- even point to decrease.