Question

What is the effect of decrease in variable cost on B.E.P. :
(a) Decrease
(b) Increase
(C) No change
(d) None of these​

Answer 1

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Answer 2

Break even point

Explanation:

• Your overall sales equal your whole expenses when your business reaches break-even point.
• This means you're taking in the same amount of money as you need to meet all of your expenses and manage your company.
• Your firm does not profit when it reaches break-even. It does not, however, have a loss.
• The first time you hit a break-even point, your business usually takes a good turn. You've finally made enough money to cover your operational costs when you reach break-even.
• The contribution margin is the difference between the sales price per unit and the variable cost per unit. Your contribution margin indicates how much profit you take home from a sale.
• The break-even point is calculated by dividing your total fixed expenses by the difference in unit price and variable costs per unit. Remember that fixed costs are total costs, whereas sales price and variable costs are only per unit.
• Fixed costs are expenses that don't change regardless of how many units you sell.
• If you source finished products, variable costs are the product cost plus shipping charges and any import tariffs; if you manufacture, variable costs are the cost of materials used to produce the items, including labour expenses.
• Even if you haven't sold any products, costs such as rent for your offices, warehouse, or other locations will be incurred.

Thus, the effect of decrease in variable increases the break even point