Change in Fixed Cost

In graph yx shows the existing profit curve for a company along with a fixed cost OY break=-even point B, margin of safety M; profit SX whereas sales volume is OS. A change in fixed cost does not affect the contribution to sales ratio that is only influenced via variable cost and selling price per unit.

 

Line y₁, x₁ displays the new profit curve while fixed costs are reduced to OY₁. The following must be noted

• The profit at sales volume OS has raised to SX
• Break-even point has been lowered to B
• Margin of safety has been rise to M₁
• Contribution sales ratio is not changed

Posted Date: 2/7/2013 1:03:52 AM | Location : United States

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