Assume that all other aspects o f the situation remain constant except the chang
ID: 2469633 • Letter: A
Question
Assume that all other aspects o f the situation remain constant except the change that is being specified in the question. For each of these 5 questions, your possible answers are: increase decrease no effect it cannot be determined from the information as given. What effect would an increase in selling price have on the breakeven point (in units) for a company? What effect would an increase in production have on the absorption costing net operating income for a company? What effect would an increase in the contribution margin ratio have on the breakeven point (in dollars) for a company? A company buys a new machine that replaces many of the direct labor workers that had been used to make the company's product. What effect would this change most likely have on the company's contribution margin ratio? You may assume that the selling price of the product will not change. Assume that our company has a positive margin of safety. What effect would an increase in the sales volume have on the company's margin of safety in units?Explanation / Answer
10. An increase in the selling price would increase the breakeven point ( in units) for a Company since owing to the increase, the contribution margin would go up, and in order to breakeven the Company would have to revisit its cost workings, leading to a consequent increase therein also. 11. An increase in production would decrease the net operating income per absorption costing for a Company, since the cost per unit would go up, which is based on the actual units produced, and not the sales quantity. 12. An increase in the contribution margin ratio would technically have no effect on the breakeven point in dollars for a Company. The increase in sales price per unit or costs per unit are the two main factors which determine the calculation of the breakeven point. 13. The labor cost reduced will be compensated by overheads pertaining to the machine. Hence, the contribution margin ratio would not change, given that the selling price of the product will not change. 14. Based on the given information, it is difficult to determine the change in the margin of safety, based on the increase in the sales volume.