If a Company Is Currently Operating at Its Break-Even Point

question 24

Multiple Choice

If a company is currently operating at its break-even point, which of the following statements is true? (Income tax considerations are ignored.)

• A) If fixed costs increase, net profit will decrease by the contribution margin ratio times the amount of the increase in fixed costs.
• B) If sales increase by 20%, net profit will also increase by 20%, assuming that fixed costs are not equal to zero.
• C) If variable costs double, net profit will decrease by 50%.
• D) Net profit will increase by the increase in number of units sold times the contribution margin per unit.

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Definitions:

Parol Evidence Rule

A legal principle in contract law that prevents parties from presenting extrinsic evidence of prior or contemporaneous negotiations to alter or contradict the terms of a written agreement.

Condition Precedent

refers to a condition or event that must occur before a contract becomes effective or before a party is obligated to perform their contractual duties.

Parol Evidence Rule

A principle in contract law that prevents parties from presenting extrinsic evidence that would contradict, modify, or vary the terms of a written contract.

Oral Modifications

Oral modifications refer to changes made to the terms of an agreement through spoken communication between parties, as opposed to written amendments.