Question

Assuming all other factors remain constant, if variable cost per unit increases, then the break-even point will:

Answer 1

The break-even point in units increases.

Step-by-step explanation:

The break-even point in units is the number of units required to cover for the fixed costs. In this sales level, the net income is zero.

To calculate the break-even point in units, you need to use the following formula:

Break-even point in units= fixed costs/ (selling price - unitary variable cost)

If the unitary variable cost increases, the contribution margin per unit decreases. Therefore, now you need to sell more units to cover for the fixed costs. The break-even point in units increases.