Question

If the selling price per unit increases, the break-even point in units will

a.decrease.

b.increase.

c.remain the same.

d.remain the same; however, contribution per unit will decrease.

Answer 1

Answer:

(A) decrease.

If the selling price per unit increases, the break-even point in units will decrease

Explanation to the answer

break-even point

=Fixed cost/ gross margin

Suppose company has selling price $10 and variable cost is $6 and fixed cost$21,000 then its break even pint is

gross margin

=(10-6)/10

=4/10

=40%

break-even point

=Fixed cost/ gross margin

=$21,000/40%

=$52,500

BEP in unit =5250 units

Now if Selling price increase to $12 and all factor remaining same then New break even point

=Fixed cost/ gross margin

=$21,000/50%

=$42,000

New break-even point =$42,000

New BEP in unit =42000/12 =3500 units

So we can see that with increase, If the selling price per unit increases, the break-even point in units will decrease