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Multiple choice: If a company increases its selling price by $2 per unit due to an...

Multiple choice: If a company increases its selling price by $2 per unit due to an increase in its variable labor cost of $2 per unit, the break-even point in units will: decrease increase not change change but direction cannot be determined.

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Answer #1

Correct option – Break-even point in units will NOT CHANGE

Effect of increase in selling price per unit by $2, increase in variable cost per unit by $2 on BEP in units:

An increase of $2 in selling price per unit and variable cost per unit would not change the contribution margin per unit.

As the increase in $2 selling price is offset by increase in $2 variable cost per unit.

Since, contribution margin per unit remains unchanged the BEP unit will NOT CHANGE.

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