Change in fixed cost, Cost Accounting

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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.

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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

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