Question

Select cost information for Klondike Corporation is as follows: Direct materials Rent expense 1,000 units of output Total Cost/Unit $4,000 $4.00 $2,000 $2.00 2,000 units of output Total Cost/Unit $8,000 $4.00 $2,000 $1.00 Based on this information: Multiple Choice ) Both direct materials and rent expense are variable costs Prox 1 of 20 Next >

Answer 1

1.

Based on the data given in the question, it can be concluded that direct material is a variable cost and rent is a fixed cost.

Direct material is a variable cost since per unit direct material cost remains same even when output is increased from 1,000 units to 2,000 units.

Rent is a fixed cost since total rent expense remains same at $2,000 even when output is increased from 1,000 units to 2,000 units.

Fourth option is the correct option.

2.

Total fixed costs = $84,000

Contribution margin per unit = $12

Break even point (units) = Fixed cost/Contribution margin per unit

= 84,000/12

= 7,000

First option is the correct option.

3.

Selling price per unit = $450

Variable cost per unit = $270

Contribution margin per unit = Selling price per unit – Variable cost per unit

= 450 - 270

= $180

Contribution margin ratio = Contribution margin per unit/Selling price per unit

= 180/450

= 40%

Dollar Sales to get a target profit = (Fixed cost + Target profit)/Contribution margin ratio

= (800,000 + 1,125,000)/40%

= 1,925,000/40%

= $4,812,500

Second option is the correct option.

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