Which of the following is true?Group of answer choicesAn increase in sales price per unit decreases the contribution margin per unit.An increase in sales price per unit increases the number of units required to break even.When the sales price per unit decreases, the breakeven point increases.When the sales price per unit increases, the contribution margin per unit remains the same.
Question
Which of the following is true?Group of answer choicesAn increase in sales price per unit decreases the contribution margin per unit.An increase in sales price per unit increases the number of units required to break even.When the sales price per unit decreases, the breakeven point increases.When the sales price per unit increases, the contribution margin per unit remains the same.
Solution
The correct statement is: "When the sales price per unit decreases, the breakeven point increases."
Here's why:
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An increase in sales price per unit does not decrease the contribution margin per unit. In fact, it increases the contribution margin per unit because the contribution margin is calculated as the selling price per unit minus the variable cost per unit.
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An increase in sales price per unit does not increase the number of units required to break even. It actually decreases the number of units required to break even because the breakeven point is calculated as fixed costs divided by the contribution margin per unit. So, if the contribution margin per unit increases (due to an increase in sales price per unit), the breakeven point (number of units required to break even) decreases.
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When the sales price per unit decreases, the breakeven point increases. This is true because, as explained above, the breakeven point is calculated as fixed costs divided by the contribution margin per unit. So, if the contribution margin per unit decreases (due to a decrease in sales price per unit), the breakeven point (number of units required to break even) increases.
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When the sales price per unit increases, the contribution margin per unit does not remain the same. It increases because the contribution margin is calculated as the selling price per unit minus the variable cost per unit.
Similar Questions
If a company increases production without any increase in fixed costs:Group of answer choicesUnit total cost will increase.Fixed cost per unit will increase.Variable costs per unit will decrease.Gross margin per unit will increase when the units are sold.
When the sales price increases and the costs function remains unchanged:Group of answer choicesBreak-even output decreases.Break-even output remains the same.Break-even output increases.Total fixed costs decrease.
The contribution margin per unit equals:Group of answer choicesselling price - fixed costs per unitselling price - variable costs per unitfixed cost - contribution margin ratioselling price - costs of good sold
The contribution margin ratio:Multiple ChoiceIs the percent of each sales dollar that remains after deducting the unit variable cost.Is the percent of each sales dollar that remains after deducting the unit fixed cost.Is the percent of each sales dollar that remains to cover the variable and fixed costs.Cannot be used in conjunction with other analytical tools.Is the same as the contribution margin per unit.
If the sales output of a firm increases, the break-even point will:Group of answer choicesincrease.stay the same.reduce.equal the margin of safety.
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