Answer:
The break -even units will decrease
Explanation:
Under the CVP analysis method, the break-even point is determined by dividing the fixed cost by the contribution margin per unit.
i.e., Break-even point equal to fixed cost
contribution margin per unit
The contribution margin per unit is obtained by subtracting variable costs from the selling price.
For this company, there have been changes in the selling price and the fixed costs.
The price has changed from $1.00 to $1.20, as a percentage change
=$1.20 -1.00 = $0.20
=$0.20/1 x 100 =20% increase in price
The fixed costs have changed from 400,000 to 450,000, as a percentage change
=$450,000 -$400,000= $50,000
=$50,000/ $400,000 x 100 = 12.5 %
The selling price has increased by a bigger percentage than the fixed costs.
In calculating the break-even point, The numerator (fixed will have increased by a smaller margin compared to the contribution margin per unit.
Mathematically, the break-even units will decrease, the denominator will be relatively greater than the numerator
