Company X and Company Y each have a break-even point of 2,000 units. If Company X has higher fixed costs but lower variable costs, what will be the effect of an increase in sales volume, for both companies, to 2,200 units?

Question

Quizplus · Accepted Answer

Since Company X has higher fixed costs and lower variable costs, an increase in sales volume will result in a larger increase in profit for Company X compared to Company Y. As both companies have the same break-even point, Company X will have a higher profit margin for sales beyond the break-even point than Company Y. Therefore, Company X will become more profitable than Company Y with an increase in sales volume to 2,200 units.

Company X and Company Y Each Have a Break-Even Point