If a company increases its selling price by $2 per unit due to an increase in its variable labor cost of $2 per unit, the break-even point in units will:
A) decrease.
B) increase.
C) not change.
D) change but direction cannot be determined.

Question

Quizplus · Accepted Answer

The break-even point in units is calculated by dividing the total fixed costs by the contribution margin per unit. Since the variable cost has increased by $2 per unit, the contribution margin will decrease by $2 per unit as well. By increasing the selling price by $2 per unit, the total revenue will increase by $2 per unit as well. Therefore, there will be no change in the contribution margin per unit, and the break-even point in units will not change.

If a Company Increases Its Selling Price by $2 Per