Assume a product costs $5 each.The variable cost per unit is currently $4,and fixed costs are $25,000.If the company can alter its production method such that variable costs fall to $3.50 and fixed costs rise to $30,000,what will happen to the breakeven point?
A)It will rise and fall later.
B)It will rise.
C)It will remain the same.
D)It will fall.

Question

Quizplus · Accepted Answer

The breakeven point will fall because the reduction in variable costs per unit increases the contribution margin per unit, which offsets the increase in fixed costs, leading to a lower breakeven point.

Assume a Product Costs $5 Each