Question

If fixed costs increased and variable costs per unit decreased, the break-even point would_______________.

a. decrease
b. increase
c. remain the same
d. cannot be determined from the data provided

Answer 1

The correct option is D,cannot be determined from the data provided

Step-by-step explanation:

Break-even points in units=fixed costs/contribution margin per unit

Contribution margin per unit =selling price -variable cost

In other words, from the scenario, it is clear that the numerator fixed costs has increased and also a reduction in variable cost per unit implies an increase in contribution margin per unit since a lesser variable cost is being deducted from selling price.

The impact of both increases in fixed costs and contribution margin cannot be determined except if more details is provided which will give further guidance regarding which of the two increased at a higher rate compared to the other.