If Total Fixed Costs Increase While Variable Costs and Sales

question 10

Multiple Choice

If total fixed costs increase while variable costs and sales price are unchanged,what happens to the break-even point?

• A) The break-even point increases, and therefore more units must be sold to break even.
• B) The break-even point decreases, and therefore fewer units must be sold to break even.
• C) The break-even point remains the same.
• D) The break-even point decreases and therefore more units must be sold to break even.

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Definitions:

Cash Cycle

The period it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over a period, often used to assess the efficiency of inventory management.

Accounts Receivable Turnover

A measure of how efficiently a company collects its outstanding credit sales, calculated as sales divided by average accounts receivable.

Accounts Payable Period

The amount of time it takes for a business to pay its suppliers after receiving goods or services, reflecting the company's payment policy towards its creditors.