Multiple Choice QuestionAssuming all other factors remain constant, if variable cost per unit increases, then the break-even point will:Multiple choice question.increasedecrease
Question
Multiple Choice QuestionAssuming all other factors remain constant, if variable cost per unit increases, then the break-even point will:Multiple choice question.increasedecrease
Solution
The answer is "increase".
Here's why:
The break-even point is the point at which total revenue equals total costs, meaning the business is neither making a profit nor a loss. It is calculated by dividing the total fixed costs by the contribution margin per unit. The contribution margin per unit is the selling price per unit minus the variable cost per unit.
If the variable cost per unit increases, the contribution margin per unit decreases (assuming the selling price per unit remains constant). This means that more units need to be sold to cover the fixed costs, hence the break-even point increases.
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