Question

In: Accounting

1. When sales price increases and all other variables are held constant, the break-even point will...

1. When sales price increases and all other variables are held constant, the break-even point will ____________________.

a. increase

b. decrease

c. remain unchanged

d. produce a lower contribution margin

2. When variable costs increase and all other variables remain unchanged, the break-even point will ___________________.

a. decrease

b. remain unchanged

c. increase

d. produce a lower contribution margin

3. When fixed costs increase and all other variables remain unchanged, the contribution margin will ___________________.

a. increase

b. increase variable costs per unit

c. remain unchanged

d. decrease

4. Break-even for a multiple-product firm ____________________________.

a. can only be calculated when the proportion of products sold is the same for all products

b. can be calculated by multiplying fixed costs by the contribution margin ratio of a compostite unit

c. can be calculated by multiplying fixed costs by the contribution margin ratio of the most common product in the sales mix

d. can be calculated by dividing total fixed costs by the contribution margin of a composite unit

Solutions

Expert Solution

1. Answer: b. decrease

The break-even point is computed by dividing the total fixed costs by the contribution margin. When sales price increases all other variables remaining constant, the contribution margin (denominator) will increase thereby decreasing the break-even point.

2. Answer: c. increase

When variable costs increase, all other variables remaining unchanged, the contribution margin (denominator) will decrease resulting in an increase in the break-even point.

3. Answer: c. remain unchanged

The contribution margin is the difference between the sales and the variable costs. It is unaffected by the amount of fixed costs. Thus, when fixed costs increase, all other variables remaining unchanged, the contribution margin will not be impacted and hence remain unchanged.

4. Answer: d. can be calculated by dividing total fixed costs by the contribution margin of a composite unit.

The contribution margin of a composite unit is computed by taking into account the sales mix of products and their contribution margins. A multiple-product firm computes the break-even point by dividing the total fixed costs by the contribution margin of a composite unit to arrive at the total break-even point for the firm.

ekkarill92 answered 1 year ago

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