In: Accounting
23. Small Company, a producer of auto components, has the following information:
Income tax rate 20%
Selling price per unit $9.00
Variable cost per unit $4.00
Total fixed costs $150,000.00
The break-even point in units is ________.
A) 15,000 units.
B) 30,000 units.
C) 45,000 units.
D) 60,000 units.
24. If the total amount of fixed costs increases, what is the
effect on the break-even point? (Assume no other changes.)
A) The break-even point decreases.
B) The break-even point remains the same.
C) The break-even point is zero.
D) The break-even point increases.
25. Cost drivers are ________.
A) the different functions in the value chain
B) different types of functional areas in the firm
C) different types of cost calculations
D) measures of activities that require the use of resources and
thereby cause costs
26. Assume NEIU Company has the following information available:
Selling price per unit $100
Variable cost per unit $50
Fixed costs per year $250,000
Expected sales per year (units) 7,500
If fixed costs increase by $50,000, what is the break-even point
in units?
A) 3,000
B) 4,000
C) 5,000
D) 6,000
27. The use of high technology equipment to manufacture products
instead of highly skilled labor usually results in ________.
A) higher discretionary fixed costs
B) higher discretionary variable costs
C) higher operating leverage
D) lower risk
Question 23
Correct Answer ---(b) 30000 units
Calculations
A |
Selling price per unit |
$ 9.00 |
B |
Variable cost per unit |
$ 4.00 |
C=A-B |
Contribution margin per unit |
$ 5.00 |
D |
Fixed Cost |
$ 150,000.00 |
E=D/C |
Breakeven units |
30000 |
Question 24
Correct Answer—Breakeven point Increases
Explanation
Take question 23 data for example and increase fixed cost to 200000 and see that Breakeven units increased.
A |
Selling price per unit |
$ 9.00 |
B |
Variable cost per unit |
$ 4.00 |
C=A-B |
Contribution margin per unit |
$ 5.00 |
D |
Fixed Cost |
$ 200,000.00 |
E=D/C |
Breakeven units |
40000 |
Question 25
Correct Answer--- (D) measures of activities that require the use of resources and thereby cause costs.
Explanation
Cost driver helps allocate overhead cost to a particular segment/ product etc. Example of cost driver includes Number of machine hours, number of setups etc.
Question 26
Correct Answer---(D) 6000 units
Calculations
A |
Selling price per unit |
$ 100.00 |
B |
Variable cost per unit |
$ 50.00 |
C=A-B |
Contribution margin per unit |
$ 50.00 |
D |
Fixed Cost (250000+50000) |
$ 300,000.00 |
E=D/C |
Breakeven units |
6000 |
Question 27
Correct Answer---- (C ) Higher operating leverage
Explanation
With the use of machine labor cost will reduce. Labor cost is variable in nature hence variable cost will decrease and at the same time Fixed cost will increase. Operating leverage is high for a business where fixed cost is proportionately higher than variable cost.