Question
1. Total fixed costs for Diamond Enterprises are $800,000. Total costs, including both fixed and variable, are $890,000 if 120,000 units are produced. What would
1. Total fixed costs for Diamond Enterprises are $800,000. Total costs, including both fixed and variable, are $890,000 if 120,000 units are produced. What would be the fixed cost per unit at 200,000 units?
$4.00 per unit | ||
$7.42 per unit | ||
$4.45 per unit | ||
$0.45 per unit |
2. The operating leverage is 4. If production increases by 25%, how will total fixed costs likely react?
Increase by 12.5% | ||
Increase by 25% | ||
Decrease by 25% | ||
Remain the same |
3. Under what conditions should a manager always reject a special order?
the special order price is less than the variable costs of the order. | ||
there is available excess capacity. | ||
the special order price is less than the regular sales price. | ||
the special order will require variable nonmanufacturing expenses. |
4. Pluto has an operating capacity of 10,000 units and sells a single product with the following regular sales price and cost structure on a per unit basis at the operating capacity:
| Per unit | |
Sales | $100 |
|
Variable cost | 80 |
|
Fixed costs | 2 |
|
Pluto's current production level is 9,900 units. Suppose Pluto receives a special offer to sell 200 units at $110 per unit. By how much will net income change if Pluto were to accept the special offer and substitute away from current customers by the required amount?
$1,000 | ||
$2,000 | ||
$3,000 | ||
$4,000 |
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