Question 10 (1.25 points) Millar Company produces a single product which it sell

Question

Question 10(1.25 points)

Millar Company produces a single product which it sells for $89 a unit. If the fixed costs of manufacturing and selling the product are $68,400 a month and the variable costs are $57 a unit, which of the below are correct?

Question 10 options:

a)

The fixed costs amount to $32 per unit at any level of output within a relevant volume range.

b)

The company will break even with a sales volume of $68,400 a month.

c)

An increase in sales volume above $68,400 a month will cause an increase in fixed costs.

d)

The contribution margin per unit of product is $32.

a)

The fixed costs amount to $32 per unit at any level of output within a relevant volume range.

b)

The company will break even with a sales volume of $68,400 a month.

c)

An increase in sales volume above $68,400 a month will cause an increase in fixed costs.

d)

The contribution margin per unit of product is $32.

Explanation / Answer

A. Incorrect. The fixed cost/unit changes with the level of production.
B. Incorrect. Break even sales = Fixed costs/Contribution margin ratio = 68400/36% = 190,000
C. Incorrect. An increase in sales does not cause an increase in fixed costs because they are FIXED.
D. Correct! Contribution margin = Sales price - variable cost = 89-57 = 32

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