Cheesy Company The Company is considering the introduction of a new product with the following price...
Cheesy Company
The Company is considering the introduction of a new product with the following price and cost characteristics
|
Sales price |
$150 each |
|
Variable cost |
$60 each |
|
Fixed cost |
$135,000 per year |
The company expects to sell 2,000 units for the year.
16. Refer Cheesy Company. How many units must be sold to break even?
|
a. |
900 |
|
b. |
2,250 |
|
c. |
2,000 |
|
d. |
1,500 |
17. What effect could an increase (investment) in fixed costs have on the break-even point and the contribution margin?
Break-even Point Contribution Margin
|
a. |
Increase Increase |
|
b. |
Increase Decrease |
|
c. |
Decrease Increase |
|
d. |
Decrease Decrease |
18. Calculate margin of safety using the following assumptions:
|
Sales Price per unit |
$500 |
|
Variable cost per unit |
$300 |
|
Fixed Costs in total |
$200,000 |
|
Actual Sales Volume |
1,750 units |
|
a. |
1,000 units |
|
b. |
$500,000 |
|
c. |
1,750 units |
|
d. |
750 units |
19. Which of the following is a typical cost structure for home builders?
|
a. |
high fixed costs relative to variable costs. |
|
b. |
high variable costs relative to fixed costs. |
|
c. |
high profits relative to total costs. |
|
d. |
None of the answers is correct. |
Homework Answers
16. Break-even units = Fixed cost / Contribution margin per unit
= 135,000/(150-60)
= 1,500
Option D
17. Option B
18. Break-even units = 200,000/(500-300) = 1000 units
Margin of Safety = 1750 - 1000 = 750
Option D
19. Option B
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