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Computing and Affecting the Break-even Point

1. What two pieces of information do you need to know to determine a break-even point?
2. Can you use break-even analysis to determine if you can afford to increase your fixed costs?
3. What kind of business decision might cause you to increase your fixed costs?
4. Define variable costs.
5. Will purchasing a new manufacturing facility increase fixed costs or variable costs?

Solution Preview

1. You need to know the unit contribution margin and the total fixed costs to compute the break-even point. The formula is break-even point in units=total fixed costs/(selling price per unit-variable costs per unit), or total fixed costs/per-unit contribution margin.

2. Yes. If you know how many units you can realistically sell, you ...

Solution Summary

This solution answers these questions:

1. What two pieces of information do you need to know to determine a break-even point?
2. Can you use break-even analysis to determine if you can afford to increase your fixed costs?
3. What kind of business decision might cause you to increase your fixed costs?
4. Define variable costs.
5. Will purchasing a new manufacturing facility increase fixed costs or variable costs?

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