Which of the following conditions would cause the break-even point to decrease in a company using either the perpetual or periodic inventory system?

• A. An increase in total fixed costs
• B. An increase in variable costs per unit
• C. An increase in the selling price per unit
• D. A decrease in the number of units sold

Answer: (C)

Verified step by step guidance

1. Understand the concept of break-even point: The break-even point is the level of sales at which total revenues equal total costs, resulting in no profit or loss. It is calculated using the formula: \( \text{Break-even point (units)} = \frac{\text{Total Fixed Costs}}{\text{Selling Price per Unit} - \text{Variable Cost per Unit}} \).
2. Analyze the impact of an increase in total fixed costs: If total fixed costs increase, the numerator in the formula increases, which raises the break-even point. This means the company needs to sell more units to cover the higher fixed costs.
3. Examine the effect of an increase in variable costs per unit: If variable costs per unit increase, the denominator \( \text{Selling Price per Unit} - \text{Variable Cost per Unit} \) decreases, which also raises the break-even point. The company would need to sell more units to cover the higher variable costs.
4. Evaluate the impact of an increase in the selling price per unit: If the selling price per unit increases, the denominator \( \text{Selling Price per Unit} - \text{Variable Cost per Unit} \) increases, which lowers the break-even point. The company can sell fewer units to reach the break-even point because each unit contributes more to covering fixed costs.
5. Consider the effect of a decrease in the number of units sold: A decrease in the number of units sold does not directly affect the break-even point calculation, as the break-even point is a theoretical threshold rather than an actual sales figure. However, selling fewer units could impact profitability if the company fails to reach the break-even point.