Question

When the level of fixed costs is decreased, the break-even level of revenues: Question 21 options: will automatically decrease. will automatically increase. may or may not be changed, depending on variable costs. will remain unchanged, because fixed costs cannot be altered.

Answer 1

A company with lower fixed costs will have a lower break-even point of sale. Break even analysis depends on the level of fixed cost for profit earned by each unit produced and sold. For example, A company with 0 fixed cost will have break even upon the sale of first unit.

Formula for Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin

It means BEP also depends on variable cost (Contribution = Sales – Variable Cost)

may or may not be changed, depending on variable costs is correct answer