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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

If the unit cost of direct materials is decreased, what effect will this change have on the break-even point?

To determine

Break-even Point: It refers to a point in the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even point, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit

To explain: the effect of the decrease in the unit cost of direct matetrails have on the break-even point.

Explanation

Cost of direct materials is a variable cost. Thus, the decrease in the unit cost of direct materials would decrease the unit variable cost, the...

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