Marvis Manufacturing is trying to improve its profitability and decrease its breakeven point. Which of the...
Marvis Manufacturing is trying to improve its profitability and decrease its breakeven point. Which of the following actions could Marvis take to accomplish this goal? Select ALL options that would improve profitability and decrease the breakeven point.
Increase fixed expenses
Decrease fixed expenses
Increase sales price
Decrease sales price
Increase variable cost per unit
Decrease variable cost per unit
Increase sales volume
Decrease sales volume
Homework Answers
Answer
- Note:
>Profitability will increase if Sales are increased, Sale price is increase or cost is reduced.
>Break even point will decrease if Fixed cost is reduced OR Contribution margin is increased. - Only following Option statement will lead to INCREASE in profitability and DECREASE in Break even point.
>Option #2 Decrease in fixed
expenses = Lower cost = Higher profitability.
Decrease in fixed expenses = Decrease in Break even point.
>Option #3: Increase in sales price = Higher profitability and Higher contribution margin = Lower Break even point.
>Option #6: Decrease in Variable
cost per unit = Higher profitability as cost is reduced.
It will lead to decrease in Break even point because Contribution
margin will Increase
- Note: Option #7 Increase in sales volume will increase profitability BUT it will not affect the Break even point.
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