ITPEC IP October 2023 Question 66
ITPEC IP October 2023 — Question 66 of 100
Reducing labor costs and restructuring indirect departments lowers costs and therefore lowers break-even sales. Break-even sales are determined by fixed costs and the contribution margin ratio. Reducing fixed overhead or variable cost means less sales revenue is needed for total contribution margin to cover fixed costs.
Answer (b)
Why not others:
- (a) new facilities generally increase fixed costs and can raise the break-even point
- (c) increasing actual sales volume may increase profit but does not itself lower the calculated break-even sales level
- (d) lowering price reduces contribution per unit and tends to raise the required break-even volume or sales
Key rule: Lower fixed costs or a higher contribution margin ratio lowers the break-even point.
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