Question

Select the correct statement regarding break-even point analysis.

a. An increase in contribution margin per unit causes the break-even point in units to increase.

b. An increase in fixed costs causes the break-even point to increase.

c. The break-even point in sales dollars equals total fixed costs divided by contribution margin per unit.

d. A decrease in the variable cost per unit causes the break-even point in units to increase.

Answer 1

Option B is true.

Step-by-step explanation:

Giving the following information:

The break-even point in units formula is:

Break-even point= fixed costs/ contribution margin

What changes the break-even point:

A variation in fixed costs.

A variation on the selling price.

A variation in the unitary variable cost.

The higher the fixed costs, the higher the number of units. Lower the contribution margin, the higher the number of units.

Therefore:

a. An increase in contribution margin per unit causes the break-even point in units to increase. False, is the opposite.

b. An increase in fixed costs causes the break-even point to increase. True, now the organization needs to sell more units to cover the fixed costs.

c. The break-even point in sales dollars equals total fixed costs divided by contribution margin per unit. False, in dollars you need to divide it for the contribution margin ratio (contribution margin / selling price).

d. A decrease in the variable cost per unit causes the break-even point in units to increase. False, is the opposite.