Question

The break-even point in dollars will decrease, other things being the same, if:

Unit selling price decreases.

Unit variable costs decrease.

Total fixed costs increase.

All of the above are correct.

None of the above are correct.

Answer 1

The break-even point in dollars will decrease, other things being the same, if Unit variable costs decrease.

Second option is correct.

Break even in dollars is calculated by dividing total fixed cost by contribution margin ratio. Contribution margin ratio is calculated by dividing contribution margin per unit by selling price price. Contribution margin per unit is calculated as the difference between selling price per unit and variable cost per unit. Thus, due to decrease in unit variable costs, Contribution margin per unit increases and thus contribution margin ratio also increases. Due to increase in contribution margin ratio, break even point in dollars also decreases.