Question

In a few brief sentences attack or defend the following statement - It is a true statement that if the fixed expenses of an organization double, then the break-even point in units would double. Provide support for your conclusion.

Answer 1

Yes this statement is very true that as the total of fixed cost will double, the break even point in units will also double , keeping the other variable like selling price per unit and variable cost per unit. This change in break even point would be due to change in total fixed cost as there is change in only one variable in break even equation i.e. total fixed cost and another variable of break even point equation is same means no change in contribution margin per unit.

Break even point in units = total fixed cost/contribution margin per unit

so any change in total fixed cost will affect the break even point in units and on doubling the total fixed cost, keeping the contribution per unit constant, the break even point in units will remain the same. This can be understood by the following example:

Actual situation when total fixed cost is 50000
Units sold		100
selling price per unit		100
variable cost per unit		50
contribution margin per unit		50
Break even point in units	total fixed cost/contribution margin per unit	50000/50	1000
After change when total fixed cost doubles
Actual situation when total fixed cost is 100000
Units sold		100
selling price per unit		100
variable cost per unit		50
contribution margin per unit		50
Break even point in units	total fixed cost/contribution margin per unit	100000/50	2000