Question

1)

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would Oa. decrease Ob. increase Oc. remain the same Od. increase or decrease, depending upon the percentage increase in utility rates

2)

3)

4)

5)

Answer 1

Solution 1:

If variable cost per unit decreased because of decrease in utility rates, the break even point would decrease.

Hence option a is correct.

Solution 2:

Operating leverage = Contribution margin / Operating income

= ($400,000*20%) / $40,000 = 2

Hence option d is correct.

Solution 3:

If variable cost are decreased by $0.50 per unit, new contribution margin per unit = $8 + $0.50 = $8.50 per unit

Fixed costs = $561,000

Break even units = Fixed costs / contribution margin per unit = $561,000 / $8.50 = 66000 units

Hence option b is correct.

Solution 4:

Variable cost per desk using high low method = (Cost at high level - Cost at low level) / (High level activity - Low level activity)

= ($83,900 - $64,100) / (3200 - 1170) = $9.75 per unit

Fixed cost = $83,900 - 3200*$9.75 = $52,700

Hence option a is correct.

Solution 5:

The true statement regarding fixed and variable cost is "Fixed costs are constant in total and variable costs are constant per unit"

Hence option c is correct.