Question

A company's break-even point will not be increased by:

a) an increase in total fixed costs.

b) a decrease in the selling price per unit.

c) an increase in the variable cost per unit.

d) an increase in the number of units produced and sold.

Answer 1

Break even point = Fixed cost/(Selling price - Variable cost)

Lets take an example for given options -

Fixed cost = $1000

Selling price = 100

Variable cost = 50

Break even point = 1000/(100-50) = 20

For option a) an increase in total fixed costs. (Lets increase fixed cost to $1500)

Break even point = 1500/50 = 30 (this is not the right option)

For option b) a decrease in the selling price per unit. (Lets decrease selling price to $80)

Break even point = 1000(80-50) = 33.33 (this is not the right option)

For option c) an increase in the variable cost per unit. (lets increase variable cost to $70)

Break even point = 1000(100-70) = 33.33 (this is not the right option)

Hence, opton D is correct