Breakeven point / net operating income
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1. If the variable expenses per toy chest increase as a percentage of the selling price will it result in a higher or lower break-even point?
2. How can current net operating income be increased under absorption costing without increasing sales? And, why?
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Solution Summary
The solution explains the impact on breakeven point of a change in variable expenses and how net operating income can be increased without increasing the sales.
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1. If the variable expenses per toy chest increase as a percentage of the selling price will it result in a higher or lower break-even point?
Breakeven point = Fixed Cost/ Contribution Margin Ratio
Contribution Margin Ratio = 1- (variable Expense/Sales)
If the Variable expense increase as a percentage of selling price, the contribution margin ratio will fall. A decrease in the contribution margin ratio will increase the breakeven point.
The other way to think of it is, at breakeven total ...
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