Question

1. if a product price increases, what happens to revenue and the breakeven point?

2. What is calculating the Breakeven point important for businesses?

Answer 1

Q1.

When the price of product increases, keeping all other variables constant, the Total revenues of the firm will increase as the same number of units could be sold for more amount.

Moreover, with the increase in revenue and variable cost remains constant, the contribution margin increases an d Contribution margin ratio of the firm improves. This will further reduce the break even sales of the firm as the firm will be able to recover its cost at lower level of activity.

Q2.

The COmputation of Break-even point is important for each and every business to know the level of activity it must definitely have to achieve to save the business from losses.