Everything else equal, a firm can reduce its operating breakeven point by
A)increasing its fixed costs.
B)decreasing the selling price of the product that is sold.
C)increasing the contribution margin, which is the product's selling price less its variable cost.
D)increasing the variable cost per unit.
E)None of the above is correct.

Question

Quizplus · Accepted Answer

Operating breakeven point is the level of sales at which a firm covers all its fixed and variable costs without earning any profits. Therefore, to reduce the operating breakeven point, a firm needs to increase its contribution margin, which is the difference between the selling price and variable cost per unit. This can be achieved by increasing the selling price, decreasing the variable cost per unit, or a combination of both. Increasing fixed costs or decreasing the selling price would have the opposite effect of increasing the breakeven point, while increasing the variable cost per unit would decrease profit margins and make it harder to achieve the breakeven point.

Everything Else Equal, a Firm Can Reduce Its Operating Breakeven