What is the effect on break-even level of revenues for each dollar of increase in fixed costs plus depreciation for a firm with 70% variable costs?
A) An increase of $0.30
B) An increase of $1.00
C) An increase of $1.43
D) An increase of $3.33

Question

Quizplus · Accepted Answer

The break-even level of revenues increases by the reciprocal of the contribution margin ratio. With 70% variable costs, the contribution margin ratio is 30% (1 - 0.70). The reciprocal of 0.30 is approximately 3.33, so each dollar increase in fixed costs increases the break-even revenue by $3.33.

What Is the Effect on Break-Even Level of Revenues for Each