Question

Which of the following conditions would cause the break-even point to increase?

a.unit selling price increases

b.unit variable cost decreases

c.unit variable cost increases

d.total fixed costs decrease

Answer 1

The correct answer is :

c.unit variable cost increases

Note:

Break Even Point = Fixed Cost / Contribution Margin Per Unit

Also,  Contribution Margin Per Unit = Selling Price Per Unit - Variable Cost Per Unit

a. If  selling price increases:

The break even point would decrease as the Unit Contribution Margin would increase.

b. unit variable cost decreases:

The break even point would decrease as the Unit Contribution Margin would increase

c. unit variable cost increases

The break even point would increase as the Unit Contribution Margin would decrease

d.total fixed costs decrease

The break even point would decrease.

This can be understood with the help of examples :

	Existing	unit selling price increases	unit variable cost decreases	unit variable cost increases	total fixed costs decreases
Selling Price	10	16	10	10	10
Less : Variable Cost	5	8	4	7	5
Contribution Margin	5	8	6	3	5
Fixed Cost	96,000	96,000	96,000	96,000	85,000
Break Even Point	19,200	12,000	16,000	32,000	17,000