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Consider the following statements:
The break-even point increases
1. If the fixed cost per unit increases
2. If the variable cost per unit decreases
3. If the selling price per unit decreases
1. If the fixed cost per unit increases
2. If the variable cost per unit decreases
3. If the selling price per unit decreases
Which of the above statements is/are correct?
- a)1 only
- b)1 and 2
- c)2 and 3
- d)1 and 3
Correct answer is option 'D'. Can you explain this answer?
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Verified Answer
Consider the following statements:The break-even point increases1. If ...
Therefore if the Fixed Cost/Unit i.e. CF increases the value of x increased i.e. B.E.P. increases.
If the variable cost/unit, i.e. CV decreases × decreases i.e. B.E.P. decreases.
If the selling price i.e. CS decreases the value of × increases i.e. B.E.P. increases. Therefore statements (1) and (3) are correct.
Most Upvoted Answer
Consider the following statements:The break-even point increases1. If ...
The Break-even Point and its Factors
Introduction:
The break-even point is a crucial concept in business and finance. It represents the point at which total revenue equals total cost, resulting in neither profit nor loss. Understanding the factors that influence the break-even point is essential for businesses to make informed decisions about pricing, costs, and profitability.
Factors Influencing the Break-even Point:
Several factors can influence the break-even point. Let's examine the three statements provided and determine their accuracy:
Statement 1: If the fixed cost per unit increases
Fixed costs are expenses that do not change with the level of production or sales. Examples include rent, salaries, and insurance. If the fixed cost per unit increases, it means that the total fixed costs increase as well. This will result in a higher break-even point because more units need to be sold to cover the increased fixed costs. Therefore, statement 1 is correct.
Statement 2: If the variable cost per unit decreases
Variable costs, on the other hand, vary with the level of production or sales. Examples include raw materials, direct labor, and shipping costs. If the variable cost per unit decreases, it means that the total variable costs decrease as well. This will lead to a lower break-even point because fewer units need to be sold to cover the reduced variable costs. Hence, statement 2 is correct.
Statement 3: If the selling price per unit decreases
The selling price per unit directly affects the revenue generated from each sale. If the selling price per unit decreases, it means that the revenue per unit decreases as well. To maintain the break-even point, a higher number of units must be sold to generate the same revenue. Therefore, statement 3 is correct.
Conclusion:
In conclusion, all three statements are correct. The break-even point increases if the fixed cost per unit increases or if the selling price per unit decreases. Conversely, the break-even point decreases if the variable cost per unit decreases. Understanding these factors allows businesses to analyze the impact of changes in costs and pricing on their break-even point and make informed decisions to maximize profitability.
Introduction:
The break-even point is a crucial concept in business and finance. It represents the point at which total revenue equals total cost, resulting in neither profit nor loss. Understanding the factors that influence the break-even point is essential for businesses to make informed decisions about pricing, costs, and profitability.
Factors Influencing the Break-even Point:
Several factors can influence the break-even point. Let's examine the three statements provided and determine their accuracy:
Statement 1: If the fixed cost per unit increases
Fixed costs are expenses that do not change with the level of production or sales. Examples include rent, salaries, and insurance. If the fixed cost per unit increases, it means that the total fixed costs increase as well. This will result in a higher break-even point because more units need to be sold to cover the increased fixed costs. Therefore, statement 1 is correct.
Statement 2: If the variable cost per unit decreases
Variable costs, on the other hand, vary with the level of production or sales. Examples include raw materials, direct labor, and shipping costs. If the variable cost per unit decreases, it means that the total variable costs decrease as well. This will lead to a lower break-even point because fewer units need to be sold to cover the reduced variable costs. Hence, statement 2 is correct.
Statement 3: If the selling price per unit decreases
The selling price per unit directly affects the revenue generated from each sale. If the selling price per unit decreases, it means that the revenue per unit decreases as well. To maintain the break-even point, a higher number of units must be sold to generate the same revenue. Therefore, statement 3 is correct.
Conclusion:
In conclusion, all three statements are correct. The break-even point increases if the fixed cost per unit increases or if the selling price per unit decreases. Conversely, the break-even point decreases if the variable cost per unit decreases. Understanding these factors allows businesses to analyze the impact of changes in costs and pricing on their break-even point and make informed decisions to maximize profitability.
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Consider the following statements:The break-even point increases1. If the fixed cost per unit increases2. If the variable cost per unit decreases3. If the selling price per unit decreasesWhich of the above statements is/are correct?a)1 only b)1 and 2 c)2 and 3 d)1 and 3Correct answer is option 'D'. Can you explain this answer?
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