Question

LO 3.3When sales price decreases and all other variables are held constant, the break-even point will ________.

remain unchanged
increase
decrease
produce a higher contribution margin

Answer 1

increase

Step-by-step explanation:

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

Break-even = Fixed cost / (Sale price - Variable cost)

If sales price (SP) decreases while keeping other factors; variable cost(VC) and fixed cost(FC) constant, the denominator amount will be smaller, making the break- even point to increase.