Question

Break-even analysis is used frequently by operations managers to determine the best manufacturing process to utilize in order to meet production needs for profitability. With this in mind, which of the following statements is true:

Select one: a. The higher the volume, the lower required price per unit to break-even

b. The lower the sales price, the higher variable costs to produce a single unit

c. The lower the volume, the higher total costs per unit to produce a single unit

d. None of the above

Answer 1

Answer is: (d) None of the above.

Explanation:

In breakeven, Units*Sales – (Units*Cost + Fixed cost) = 0

So the volume decides both revenue as well as the variable cost. Increasing the volume doesn’t mean decreasing the sales price.

Lower sales price means lesser variable cost

Lower volume means lesser total cost as volume decides the variable cost)

Hence none are correct.

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