Question

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

remain unchanged
increase
decrease
produce a lower contribution margin

Answer 1

increase

Step-by-step explanation:

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

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

If you increase variable cost (VC) while keeping the selling price and fixed cost constant, the denominator amount will be smaller making the break- even point to increase.