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If a company increases its selling price by $2 due to an increase in its variable...

If a company increases its selling price by $2 due to an increase in its variable labor cost of $2 per unit, the break even point in units will:

Increase

change but direction cannot be determined

decrease

not change

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Answer #1

Answer: Not Change

If a company increases its selling price by $2 due to an increase in its variable labor cost of $2 per unit, the break-even point in units will not change because of contribution margin per unit does not change.

Break-even point in units = Fixed cost / contribution margin per unit

Suppose Selling price is $100 and variable cost including material, labor & Mfg. overhead is $60 and fixed cost $100,000 then

Break-even point in units equals to $100,000/($100-$60) i.e 2,500 units

and after an increase in selling price and variable labor cost by $2 then break even point would be $100,000/($102-$62) i.e. 2,500 units

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