COST ACCOUNTING
BREAK EVEN POINT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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total cost line pivots downwards
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fixed cost line and total cost line move upwards in a parallel shift
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total cost line pivots upwards
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revenue line pivots upwards
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Detailed explanation-1: -Lower sales prices will decrease the contribution margin per unit and cause the break-even point in unit sales to increase. Lower sales prices can be the result of aggressive discounts or weak demand. Higher variable costs will reduce the unit CM and cause the break-even point to increase.
Detailed explanation-2: -The variable cost of production is a constant amount per unit produced. As the volume of production and output increases, variable costs will also increase. Conversely, when fewer products are produced, the variable costs associated with production will consequently decrease.
Detailed explanation-3: -Holding other factors constant an increase in variable costs leads to an increase in the break-even point. This is because as the variable costs increase the contribution margin will decrease resulting in a need for more revenues to be able to cover the fixed costs.
Detailed explanation-4: -If the variable cost per unit decreases, it means that the total contribution margin per unit leads to a higher divisor in the computation of the break-even point. This will lead to a lower break-even point.