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CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions

Which statement about the break-even point is correct, other things remaining unchanged?

An increase in variable cost per unit raises the break-even point. Contribution per unit falls when variable cost rises, so more units must be sold to recover the same fixed costs. Higher fixed costs also raise it, while a higher price or P/V ratio lowers it.

  1. AAn increase in fixed costs lowers the break-even point
  2. BAn increase in variable cost per unit raises the break-even pointCorrect
  3. CAn increase in selling price raises the break-even point
  4. DA rise in the P/V ratio raises the break-even point

Explanation

Break-even units = fixed cost / contribution per unit. Higher variable cost reduces contribution per unit, so more units are needed to cover fixed costs. The other options state the reverse of the true effect.

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