Question

8a)If Vaughn Ltd. has a margin of safety of $113000, which of the following statements is correct?

	a.	Sales can increase by $113000 before Vaughn have an operating loss.
	b.	Sales can increase by $56500, and fixed costs can decrease by $56500 before Vaughn have an operating loss.
	c.	Fixed costs can increase by $113000 before Vaughn have an operating loss.
	d.	Sales can decrease by $56500 and fixed costs can increase by $45200 before Vaughn have an operating loss.

8b)

Mixed costs

	a.	none of these.
	b.	change in total in response to changes in activity level.
	c.	change in proportion to changes in activity level.
	d.	change proportionately and in total as a result of changes in activity level.

8c)

Which of the following is not true?

	a.	Mixed costs change in total, but not proportionately with the change in activity level.
	b.	An electricity bill is an example of mixed costs. The fixed portion represents the cost of having the service available and the variable cost is reflective of actual customer usage.
	c.	Mixed costs are comprised of both fixed costs and variable costs, and as a result, mixed costs increase proportionately with an increase in activity level.
	d.	Mixed costs are also known as semi-variable costs.

8d)

Which of the following would most likely be considered direct material?

	a.	lubrication for factory machines
	b.	cleaning products used in a factory
	c.	wood used to make a chair
	d.	glue used to make a chair

Answer 1

Question 8a:

Option C. Fixed costs can increase by $ 113,000 before vaughn can have an operating loss

Margin of safety sales is that level of safety sales which is over and above the break even point. So, if the fixed cost increases then bep increase and which enhance the limit of margin of safety.

Question 8b:

Option D change proportionately and in total as a result of changes in activity level.

Mixed costs do act as variable cost and also fixed costs. So, they will change per unit and also in total.

Question 8c :

Option A. Mixed costs change in total, but not proportionately with the change in activity level is not a correct statement.

Mixed costs will change in total and also in proportionate with change in activity level

Question 8d:

Option D. Wood used to make a chair

Wood is a direct material in making a chair.

Glue is not a direct material and cleaning products and lubrication are factory overheads.