Asked by Elizabeth Gossum on May 27, 2024
Verified
Flying Cloud Co. has the following operating data for its manufacturing operations:Unit selling price$ 250Unit variable cost100Total fixed costs840,000The company has decided to increase the wages of hourly workers which will increase the unit variable cost by 10%. Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 4%. If sales prices are held constant, the next break-even point for Flying Cloud Co. will be
A) increased by 640 units
B) increased by 400 units
C) decreased by 640 units
D) increased by 800 units
Unit Variable Cost
The cost associated with producing one additional unit of a product, which typically includes materials and labor.
Fixed Costs
Expenses that do not change with the level of production or sales activity, such as rent, salaries, and insurance premiums.
- Evaluate the effect of adjustments in constant costs, fluctuating costs, and the selling rate on the identification of break-even points.
- Comprehend the impact of variations in variable and fixed costs on operating income.
Verified Answer
MS
Marky SalazarJun 01, 2024
Final Answer :
A
Explanation :
The original unit variable cost is $100, with a 10% increase, it becomes $110. The original fixed costs are $840,000, with a 4% increase, they become $873,600. The contribution margin per unit is now $140 ($250 - $110). The new break-even point in units is $873,600 / $140 = 6,240 units. Originally, it was $840,000 / $150 = 5,600 units. The difference is 640 units, indicating the break-even point has increased by 640 units.
Learning Objectives
- Evaluate the effect of adjustments in constant costs, fluctuating costs, and the selling rate on the identification of break-even points.
- Comprehend the impact of variations in variable and fixed costs on operating income.