Question

In a strategy meeting, the computer manufacturing company's president said, "If we raised the price of our product, the company's break-even point will be lower." The financial vice president responded by saying, "The company will also be less likely to incur a loss." As a management accountant would you agree or disagree with these statements and why?

Answer 1

For Calculation purpose the statment works well since Increase in orice will increase the contribution per Unit and accordingly the Breakeven Qty will also reduces. But It is also to keep in mind that Sales Qty is inversely related with Price of the Product except for few exceptional Goods. So, we have keep in mind the Market Expectations and the Purchasing Power of the Customer along with the characteristics of the potential customers. It may end up in less sales and accordingly leads to loss.

So, Being a Managment Accountant I would suugest to consider various other factors also while taking any such decission to change the Selling Price.

Happy Learning and All The Best.