Question

If variable cost per unit decreases, then contribution margin _________ and break-even point _________.

If variable cost per unit decreases, then contribution margin _________ and break-even point _________.

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Answer #1

If variable cost per unit decreases, then contribution margin increases and break-even point decreases.

Explanation:

Sales - Variable cost = Contribution margin.

Therefore, from the above formula, it is evident that when variable cost decreases, contribution margin increases.

Break-even point = Fixed cost / Contribution margin

Therefore, as contribution margin (the denominator) increases, (fixed costs being constant), Break-even point decreases.

Please feel free to ask any queries. Thank you.

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