COST ACCOUNTING
BREAK EVEN POINT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The margin of safety would increase
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The number of sales required to break-even increases
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Break-even point is lower so the business makes more profit
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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.
Detailed explanation-2: -Total profit at the break-even point is zero.
Detailed explanation-3: -With increasing costs, a business would have to sell more products in order to break even or make a profit. When costs increase, businesses often have to make the choice of absorbing increased costs or passing them on to customers by increasing prices. As a result, the business will be more likely to make a loss.
Detailed explanation-4: -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.