1. Based on the data contained in Table A, what is the break-even point in units

Question

1. Based on the data contained in Table A, what is the break-even point in units produced and sold?


TABLE A


Average selling price per unit $18.00
Variable cost per unit $13.00
Units sold 400,000
Fixed costs $650,000
Interest expense $ 50,000 (Points : 1)
130,000
140,000
150,000
180,000


2. Financial leverage is distinct from operating leverage since it accounts for (Points : 1)
use of debt and preferred stock.
variability in fixed operating costs.
variability in sales.
changes in EBIT.


3. Flotation costs: (Points : 1)
include the fees paid to the investment bankers, lawyers, and accountants involved in selling a new security issue.
encourage firms to pay large dividends.
are encountered whenever a firm fails to pay a dividend.
are incurred when investors fail to cash their dividend check.


4. Amish Enterprises makes wooden play sets. The company pays annual rent of $400,000 per year and pays administrative salaries totaling $150,000 per year. Each play set requires $400 of wood, ten hours of labor at $70 per hour, and variable overhead costs of $100. Fixed advertising expenses equal $100,000 per year. Each play set sells for $3,200. What is Amish Enterprises' break-even output level? (Points : 1)
340 play sets
325 play sets
297 play sets
258 play sets


5. A firm that uses large amounts of debt financing in an industry characterized by a high degree of business risk would have ________ earnings per share fluctuations resulting from changes in levels of sales. (Points : 1)
no
constant
large
small

Explanation / Answer

1.       Break even poing in units   = Fixed cost/Contribution magin per unit.             Fixed cost is $650,000             Contribution margin per unit   = Selling price per unti -Variable cost per unit                                                         = $18 - $13                                                         = $18 - $13                                                         =$5             Break even point in units        = $650,000/$5                                                         = $130,000.       Therefore first option is correct. 2.       Financial leverage is distinct from operating leverage is use of debt and preferred stock.
3.    Flotation costs are include the fees paid to investment bankers, lawyers, and accountants involved in selling a new security issue. 4.       Fixed costs are   = Annual rent + administrative salaries expenses + Fixed advertising expenses                               = $400,000 + $150,000 + $100,000                               =$650,000       Variable costs per unit   = $700 + $100+$400                                          = $1,200          Contribution per unit   =Sales - variable costs                                           =$3,200 -$1,200                                           =$2,000          Break even point in units   = Fixed cost/Contribution magin per unit                                                 =$650,000/$2,000                                                 =325 play seats       Therefore Break even output level is 325 play seats.
5.    Lagre earing per share flucations resulting from changes in level of sales.                                                                                                               

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