Question

If a company figures out its break-even point and then decides to lower the selling price, what will it need to do in order to break even?

Answer 1

Lowering the selling price reduces the contribution margin per unit (selling price − variable cost). To break even you must either:

- Sell more units (increase volume) — this is the usual result, since break-even units = Fixed costs / (Price − Variable cost); a smaller denominator → larger required units, or
- Reduce fixed costs, or
- Reduce variable cost per unit, or
- Change the product mix or add higher-margin items.

If nothing else changes, you must sell more units to break even.