Which of the Following Changes to a Company's Contribution Income

question 8

Multiple Choice

Which of the following changes to a company's contribution income statement will always lower the break-even point (either in units or in dollars) ?

• A) Sales price increases by 10%.
• B) Sales price decreases by 5%.
• C) Variable costs increase by 10% and fixed costs decrease by 5%.
• D) Variable costs decrease by 5% and fixed costs increase by 10%.

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Definitions:

Present Value

The current value of a future amount of money or stream of cash flows, discounted at a certain interest rate.

Future Value

The amount a present sum will grow into at a specified interest rate over a specified period of time.

Profitability Index

A calculation that determines the relationship between the costs and benefits of a proposed project through the ratio of present value of future cash flows over the initial investment.

Mutually Exclusive Projects

Projects in which the acceptance of one project will exclude the acceptance of the other projects due to constraints.