COST ACCOUNTING
BREAK EVEN POINT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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If there is an increase in costs what will happen to the break-even point and profits?
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Break-even point rises, profits rise
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Break-even point rises, profits fall
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Break-even point falls, profits rise
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Break-even point falls, profits fall
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Explanation:
Detailed explanation-1: -The break-even point will increase by any of the following: An increase in the amount of the company’s fixed costs/expenses. An increase in the per unit variable costs/expenses. A decrease in the company’s selling prices.
Detailed explanation-2: -An increase in fixed cost will increase the break-even units as an increase in the numerator will increase the ratio. The break-even point is calculated as fixed cost divided by contribution per unit, so as the fixed cost increases the units required to cover the fixed cost will also increase.
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