23. Small Company, a producer of auto components, has the following information:

Question

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

Explanation / Answer

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.

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

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