Question

Which of the following changes would cause a company’s breakeven point in sales to increase?

A-The company’s variable cost per unit decreases.

B-The company’s contribution-margin rate increases.

C-The company’s total fixed costs increases.

D-The company’s selling price per unit increases.

Answer 1

Correct answer is: C-The company's Total fixed cost increases

Break even point means, no profit no loss point, which sales point which covers the cost incurred.

Further, it is calculates as :

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

When Fixed cost increase, break even point in sales units will also increase to cover up the cost.

For example:

Fixed cost = $50000

Selling price = $10

Variable cost = $5

Break even point = $50000 / ($10-$5)

Break even point = 10,000 units

If, Fixed cost increases to $60,000 then,

Break even point = $60000 / ($10-$5)

Break even point = 12,000 units

Therefore, due to increase in Fixed cost break even point in sales units will also increase.