The break-even point in unit sales increases when variable expenses do which of the following?
A) Increase, and the selling price remains unchanged.
B) Decrease, and the selling price, remains unchanged.
C) Decrease, and the selling price increases.
D) Remain unchanged, and the selling price increases.

Question

Quizplus · Accepted Answer

The break-even point in unit sales is the point at which a company neither earns a profit nor incurs a loss. It is calculated by dividing fixed costs by the difference between the selling price per unit and variable cost per unit. If variable expenses increase, while the selling price remains unchanged, the contribution margin per unit decreases, which means that more units must be sold to cover fixed costs and reach the break-even point. Therefore, the break-even point in unit sales increases. Choice B is incorrect because a decrease in variable expenses would have the opposite effect and lower the break-even point. Choice C is incorrect because a decrease in variable expenses and an increase in selling price would affect the contribution margin per unit differently, making it hard to determine the net effect. Choice D is incorrect because the relationship between fixed costs, variable expenses, selling price, and unit sales is not affected by an increase in the selling price alone.

The Break-Even Point in Unit Sales Increases When Variable Expenses