Which of the following occurs if a company experiences an increase in its fixed costs? The contribution margin would decrease. The contribution margin would increase. Net income would increase. More than one of the answers would occur. The break-even point would increase.

The break-even point would increase.

Explanation:

Under the cost volume profit (CVP) analysis, fixed costs are used to determine the break-even point. At the break-even point, a business does not realize any profits or losses. It is the level where sales revenue matches the total cost.

Using the CVP method, the break-even point is determined by dividing the fixed cost by the contribution margin per unit.  If the contribution margin is constant, the break-even level will change if there changes in fixed costs.  A rise in fixed cost will increase the level of break-even.  Mathematically, an increase in the numerator with the denominator remaining constant will result in a high-value number.

The correct answer is letter "E": The break-even point would increase.

Explanation:

In the corporate world, the breakeven point comes when a company has earned enough revenue to cover its fixed overhead expenses. The breakeven point is calculated by dividing the firm's fixed costs by the gross profit margin -sales revenue minus costs of goods sold.

Whether the fixed costs or the gross profit margin changes, the breakeven point will vary. If the fixed costs increase, so will the business breakeven point.

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