Suppose the contribution margin ratio increases. What will be the effect on the break-even point in sales dollars?
A) The dollar value will double.
B) The dollar value will increase.
C) The dollar value will decrease.
D) The dollar value will remain the same.

Question

Quizplus · Accepted Answer

An increase in the contribution margin ratio means that each dollar of sales revenue will contribute more to covering the fixed costs and generating a profit. Therefore, the break-even point in sales dollars will decrease, as less overall sales revenue is needed to cover the fixed costs and reach the break-even point.

Suppose the Contribution Margin Ratio Increases