A Firm Is Reorganising and Reclassifying Its Cost Structure

question 48

Multiple Choice

A firm is reorganising and reclassifying its cost structure. The firm previously classified the item 'glue and nails' as indirect material. The firm is considering now tracing this cost directly to products and treating 'glue and nails' as direct material. What is the effect on the break-even point (if any) of that change, provided all other items remain unchanged?

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