Unformatted text preview: cial moments. For example, on his wedding anniversary, David had an art print produced
that celebrated highlights of his ten years with his wife, Kathy. Suppose that Your Memory Lane
sells the custom artwork for $500. It estimates its average variable costs to be $200 per unit
produced. It figures its fixed costs to be $900,000 per year. How many prints does it have to sell
to break even?
a.
2,000 prints
b.
1,200 prints
c.
3,000 prints
d.
2,500 prints
e.
6,000 prints
ANS: C Breakeven quantity equals the total fixed costs ($900,000) divided by the fixed cost contribution
per unit ($500 – $200 = $300).
PTS: 1
REF: 312
KEY: CB&E Model Pricing OBJ: 195
TOP: AACSB Analytic
MSC: BLOOMS Analysis 86. Furr Friends sells kits for making personalized grave markers for pets. The company sells each kit
for $25. The average variable cost for each kit is $10, and the total annual fixed costs for plant
operation are $45,000. What is the breakeven point in units?
a.
1,800
b.
2,500
c.
3,000
d.
4,500
e.
5,000
ANS: C
Breakeven quantity equals the total fixed costs ($45,000) divided by the fixed cost contribution
per unit ($25 – $10 = $15).
PTS: 1
REF: 312
KEY: CB&E Model Pricing OBJ: 195
TOP: AACSB Analytic
MSC: BLOOMS Analysis 87. Regency, Inc. makes disposable cap and gown sets for graduations. Each cap and gown set sells
for $15. The average variable cost for manufacturing ten cap and gown sets is $100. Total fixed
costs for the year equal $65,000. Calculate the breakeven point in units.
a.
650
b.
765
c.
1,300
d.
4,334
e.
13,000
ANS: E
Breakeven point = $65,000 ÷ [15 – (100 ÷ 10)] = 13,000
PTS: 1
REF: 312
KEY: CB&E Model Pricing OBJ: 195
TOP: AACSB Analytic
MSC: BLOOMS Analysis 88. Ceylon Express sells bottled pasteurized tea to retailers. It has the following revenues and costs:
Sales price per bottle:
$0.50
Average variable costs per bottle:
$0.30
Total fixed costs (annual):
$50,000.00
Tax rate:
20 percent
What is the annual breakeven point in units for the company?
a.
50,000
b.
250,000
c.
100,000
d.
166,667
e.
500,000 ANS: B
Breakeven quantity is the total fixed costs ($50,000.00) divided by fixed cost contribution per
unit ($0.20).
PTS: 1
REF: 312
KEY: CB&E Model Pricing OBJ: 195
TOP: AACSB Analytic
MSC: BLOOMS Analysis 89. Chulo Ibsen makes and sells handforged wrought iron fire screens for $125 each. He has
determined that his fixed costs are $8,000, and his average variable costs per fire screen are $45.
What is his breakeven point in dollars?
a.
$22,550
b.
$12,500
c.
$10,000
d.
$8,000
e.
$5,875
ANS: B
[$8,000 ÷ ($125 – $45)] x $125 = $12,500
PTS: 1
REF: 312
KEY: CB&E Model Pricing OBJ: 195
TOP: AACSB Analytic
MSC: BLOOMS Analysis 90. Which of the following statements describes a limitation associated with breakeven analysis?
a.
It is sometimes difficult to ascertain whether a
cost is fixed or variable.
b.
It requires the calculation of marginal
revenue.
c.
It strictly considers demand.
d.
It assumes variable cost per item...
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 Fall '13

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