A Firm Is Reorganising and Reclassifying Its Cost Structure

question 45

Multiple Choice

A firm is reorganising and reclassifying its cost structure. What is the effect on the break-even point (if any) if direct labour costs are reduced and fixed indirect labour costs are increased, provided all other items remain unchanged?

• A) The break-even point will increase.
• B) The break-even point will decrease.
• C) The break-even point will change but without actual figures, it is impossible to say in what direction the change will be.
• D) It is not possible to determine whether the break-even point will change or will remain the same.

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Definitions:

Mortgages

Loans secured by real estate property, allowing borrowers to purchase property over time.

Solvency Ratios

Financial ratios that assess a company's ability to meet its long-term obligations, providing insight into its financial stability.

Long Period

A term referring to an extended duration of time, often relating to financial or strategic planning horizons.

Comparability

An accounting principle that allows stakeholders to compare financial information across different time periods effectively.