Heath Ltd owns and operates a textile manufacturing plant. Garments are sold for $40 each. The fixed plant and equipment costs are $51 600 per annum. Producing each garment incurs $15 of labour costs and $7.80 of material costs. If Heath Ltd's cost of plant and equipment increases, which of the following is true?

Question

Quizplus · Accepted Answer

The break-even point is the level of sales at which total revenue equals total costs. Since the fixed plant and equipment costs are increasing, the total costs will increase, which will cause the break-even point to increase as well. The contribution margin and variable costs will remain the same unless there are changes in the labour or material costs. Therefore, (A) and (B) are not correct, and (D) is also not correct as there will be a change in the break-even point.

Heath Ltd Owns and Operates a Textile Manufacturing Plant