Multiple Choice
In the context of inventory accounting systems, which type of cost do companies typically have more direct control over?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following conditions would cause the break-even point to decrease in a company using either the perpetual or periodic inventory system?
A
An increase in total fixed costs
B
An increase in variable costs per unit
C
An increase in the selling price per unit
D
A decrease in the number of units sold
Verified step by step guidance1
Understand the concept of break-even point: The break-even point is the level of sales at which total revenues equal total costs, resulting in no profit or loss. It is calculated using the formula: \( \text{Break-even point (units)} = \frac{\text{Total Fixed Costs}}{\text{Selling Price per Unit} - \text{Variable Cost per Unit}} \).
Analyze the impact of an increase in total fixed costs: If total fixed costs increase, the numerator in the formula increases, which raises the break-even point. This means the company needs to sell more units to cover the higher fixed costs.
Examine the effect of an increase in variable costs per unit: If variable costs per unit increase, the denominator \( \text{Selling Price per Unit} - \text{Variable Cost per Unit} \) decreases, which also raises the break-even point. The company would need to sell more units to cover the higher variable costs.
Evaluate the impact of an increase in the selling price per unit: If the selling price per unit increases, the denominator \( \text{Selling Price per Unit} - \text{Variable Cost per Unit} \) increases, which lowers the break-even point. The company can sell fewer units to reach the break-even point because each unit contributes more to covering fixed costs.
Consider the effect of a decrease in the number of units sold: A decrease in the number of units sold does not directly affect the break-even point calculation, as the break-even point is a theoretical threshold rather than an actual sales figure. However, selling fewer units could impact profitability if the company fails to reach the break-even point.
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