If a firm is currently at the break-even point, and it sells one more unit, what will happen to its operating profit?
A)It will increase by the unit selling price.
B)It will decrease by the unit variable cost.
C)It will increase by the unit contribution margin.
D)It will increase by the fixed cost divided by the unit contribution margin.

Question

Quizplus · Accepted Answer

Selling one more unit will increase both revenue and total costs, but since the firm is at the break-even point, the increase in revenue will be equal to the increase in total costs. Therefore, the operating profit will increase by the unit contribution margin, which is the amount of revenue from one unit sold that contributes to covering the fixed costs and generating a profit.

If a Firm Is Currently at the Break-Even Point, and It