COST ACCOUNTING
BREAK EVEN POINT
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
smaller output is necessary to break-even
|
|
|
break-even is achieved at a lower level of output
|
|
|
greater output necessary to break-even
|
|
|
break-even is reached at a higher level of output
|
Detailed explanation-1: -Decreased costs are likely to lower the BEP and give a business access to more profit, as it will need to sell fewer products to break even. A business may decide to keep the savings as profit or pass them on to customers as a price decrease.
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.
Detailed explanation-3: -Lowering variable costs will increase the unit contribution margin and cause the break-even point to be lower.
Detailed explanation-4: -Sales and the Break-Even Point If revenues are less than total cost, a company does not reach the break-even point, which results in a loss. A company that fails to make enough sales to meet the break-even point accumulates debt over time, which can eventually cause a company to go out of business.