Explain the relationship between the break-even point and the contribution margin. How does demand affect this relationship?
What will be an ideal response?
The break-even point is a function of a firm's fixed operating costs and expenses, and the unit selling price less the unit variable costs and expenses. The higher the fixed costs, the more units must be sold to reach the break-even point. The greater the difference between the unit selling price and the unit variable costs and expenses, the fewer units must be sold to the break-even point. The formula is
Break-even point = Total Fixed Costs and Expenses
Unit Selling Price - Unit Variable Costs and Expenses
The difference between the unit selling price and the unit variable costs and expenses (the denominator of the formula) is the contribution margin; that is, for each unit sold, a contribution is made toward covering the company's fixed costs.
The indirect impact of price on the quantity that can be sold complicates pricing decisions. Demand for a product typically decreases as price increases but price may influence demand resulting in an increased demand for a product when it is priced higher. Therefore, marketing research should be used to estimate demand for a product at various prices followed by the information being considered for the break-even analysis.
You might also like to view...
During the period from 2013 to the end of 2014, Excellence, Inc spent $90,000 on research and development for an invention that was patented on January 1, 2015. Excellence estimated that the patented invention would be useful in its production for 10 years. At the beginning of 2017, Excellence paid $16,000 in legal fees in a successful defense of the patent. What is Excellence's patent
amortization expense for 2017? A) $25,000 B) $11,000 C) $10,600 D) $2,000
Answer the following statement(s) true (T) or false (F)
1. A hypermarket is basically a very large superstore. 2. Avon uses non-store retailing. 3. Traditional retailers are found in the entry phase of the wheel of retailing. 4. Supply chain management is the process of managing the flow of materials, parts, work in progress, finished goods, the return of goods, and information by coordinating the activities of all organizations in the chain. 5. Physical distribution by water (barges and cargo ships) is the lowest cost method.
What is an omnibus test? Provide an example of an omnibus test.
What will be an ideal response?
In the figure below, what type of key is depicted?
A) Primary B) Recursive primary C) Composite D) Recursive foreign