Assume a product costs $5.The variable cost per unit is currently $4,and the fixed cost is $25,000.If the company can alter its production method such that the variable costs fall to $3.50 and the fixed costs rise to $30,000,what will happen to the breakeven point?
A)It will rise and fall later.
B)It will rise.
C)It will remain the same.
D)It will fall.

Question

Quizplus · Accepted Answer

The breakeven point is calculated as Fixed Costs / (Selling Price - Variable Costs). Initially, it is $25,000 / ($5 - $4) = 25,000 units. With the new costs, it becomes $30,000 / ($5 - $3.50) = 24,000 units. Thus, the breakeven point falls.

Assume a Product Costs $5