If all other factors remain unchanged, a 20% decrease in both the selling price and variable costs for a product will:
A) lower the breakeven point in dollars.
B) have no effect on the breakeven point in dollars.
C) increase the breakeven point in dollars.
D) cannot be determined.

Question

Quizplus · Accepted Answer

The breakeven point in dollars is determined by the fixed costs divided by the contribution margin per unit (selling price minus variable cost per unit). If both the selling price and variable costs decrease by the same percentage, the contribution margin per unit remains unchanged, thus having no effect on the breakeven point in dollars.

If All Other Factors Remain Unchanged, a 20% Decrease in Both