Question

NRG Ltd has a current breakeven point of 43,000 units. Which of the following would result in a decrease to the breakeven point?

a. a decrease in the variable costs per unit

b. an increase in the contribution margin per unit

c. a decrease in the selling price per unit

d. an increase in the fixed costs -Correct Answer

Answer 1

Answer:

Option B i.e. An Increase in the Contribution Margin per unit

Break Even Point = Fixed Cost / Contribution Margin per unit
Contribution Margin per unit = Sales - Variable Cost per unit

A decrease in Break Even point will be caused either due to increase in the value of Denominator i.e. increase in Contribution Margin per unit or Decrease in the value of Numerator i.e. Decrease in Fixed Cost.

A decrease in the Variable cost per unit will increase Contribution Margin per unit, but the Change in Contribution Margin per unit can't be determined without change in Selling price per unit. A decrease in Selling price per unit will decerase COntribution Margin per unit.

Therefore, the Correct answer is Option i.e. An increase in the Contribution Margin per unit.