Question

What effect will an increase in unit variable cost or total fixed costs have on the break-even point? What effect will an increase in the unit sales price have on the break-even point? Please explain.

Answer 1

1. If we increase unit variable cost then contribution per unit cost decreases then break even point increases. Because break even point is inversely praportionate to contribution per unit.

2. If fixed cost increases break even point increases.

Break even point is directly praportionate to fixed cost.

3. If sales price increases then contribution point increases then break even point decreases.

Becauause break even point is inverersely praportiononate to cconcontribution.

Break Even Point = ( Fixed cost / Contribution per unit)