If the sales price per unit decreases because of competition but the cost structure remains the same
A) the break-even point rises.
B) the degree of combined leverage declines.
C) the degree of financial leverage declines.
D) All of the options are true.

Question

Quizplus · Accepted Answer

The break-even point refers to the sales level at which the company neither incurs a profit nor a loss. If the sales price per unit decreases due to competition but the cost structure remains the same, the company will need to sell more units in order to break even. Therefore, the break-even point will rise. The degree of combined leverage and financial leverage may or may not change depending on other factors.

If the Sales Price Per Unit Decreases Because of Competition