Ruben, Inc. is a management consulting firm specializing in pension plans. Its billing rate to clients is $120 per hour, and variable costs average $80 per hour. Fixed costs are $24,000 per month. The income tax rate is 20%.
If variable costs increase by 10% and management increases its billing rate by 8%, what is the effect on the breakeven point, in billable hours?
A) It increases the breakeven point
B) The breakeven point will not change
C) It decreases the breakeven point
D) Cannot be determined

Question

Quizplus · Accepted Answer

The breakeven point decreases because the increase in billing rate percentage (8%) is greater than the increase in variable cost percentage (10% of $80), leading to a higher contribution margin per hour.