At it\'s present level of operations, a small manufactoring firm has total varia

Question

At it's present level of operations, a small manufactoring firm has total variable costs equal to 65% of sales and total fixed costs eequal to 20% of sales. If sales change by $1,000, operating income will change by
a. $0.15
b. $0.36
c. $0.65
d. an answer can't be determined from this information

Conan Company's monthly activity level ranged from a low of 17,000 units in May to a high of 26,000 units in October. Average production was 20,000 units per month. Utilities cost was $8,250 in May and $10,500 in October. the variable utility cost per unit, to the nearest cent, is:
a. $0.25
b. $0.40
c. $0.47
d. $0.49

Explanation / Answer

Q1 : TC for sale of $1000 = 1000*0.65 + 1000*0.20 = 850 ($) operating income change = 1000 - 850 = 150 ($) as ratio of sales = 150/100 = 0.15 ($/$) Hence, (a) may be the answer but corrected as $ 0.15 per $ of sale. Q2 : VC1 (May)= TC1 - FC VC2 (Oct)= TC2 - FC VC2 - VC1 = TC2 - TC1 = 10500 - 8250 = 2250 ($) VC per unit *(26000 - 17000) = 2250 VC per unit = 2250/9000 = 0.25 ($) Hence, (a) $0.25 , is the ANSWER.

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