The breakeven point for a service organization will decrease if:
A) The variable cost ratio increases
B) The mix of less profitable services increases
C) The contribution margin ratio increases
D) Fixed costs increase

Question

Quizplus · Accepted Answer

The breakeven point for a service organization is the point at which the total revenue equals total cost. To calculate the breakeven point, we divide the total fixed cost by the contribution margin ratio (CM ratio= sales - variable costs/sales). Therefore, if the contribution margin ratio increases, the breakeven point will decrease. This is because a higher CM ratio means that each unit sold contributes more towards covering fixed costs, resulting in a lower number of units needed to cover these costs.

The Breakeven Point for a Service Organization Will Decrease If