Question 1

If the selling price is increased and all other components of the breakeven calculation remain constant, the breakeven point will decrease.

Accepted Answer

When the selling price per unit increases, the profit margin per unit also increases, assuming costs remain constant. This means fewer units need to be sold to cover fixed costs, thus lowering the breakeven point.

Question 2

CTO stands for contribution to ownership.

Accepted Answer

CTO stands for Chief Technology Officer, a role focused on an organization's technological needs and its research and development.

Question 3

In the very long run, all costs become variable.

Accepted Answer

In the very long run, there are no fixed costs because all contracts can be renegotiated, and all capital inputs can be adjusted, making all costs variable over time.

Question 4

If a firm can sell a product, but in order to sell that product the selling price will be less than its variable costs, then the sale should be made because at least the fixed costs will be covered.

Accepted Answer

Selling a product at a price below its variable costs means the firm would not cover the variable costs and would incur a greater loss, as fixed costs are unaffected by the volume of production or sales.

Question 5

If an additional piece of equipment is purchased for $100,000 and it is depreciated over five years with a $0 salvage value using straight line depreciation, the selling price per unit is $10 and the variable costs per unit is $5, then the amount of additional units that need to be sold to pay for the new piece of equipment would be 4,000 units.

Accepted Answer

The additional depreciation expense per year is $100,000 / 5 = $20,000. The additional profit per unit is $10 - $5 = $5. Therefore, the number of additional units that need to be sold to pay for the new piece of equipment is $20,000 / $5 = 4,000 units.

Quiz 12: Tools for Evaluating Operating Decisions

If the selling price is increased and all other components of the breakeven calculation remain constant, the breakeven point will decrease.

CTO stands for contribution to ownership.

In the very long run, all costs become variable.

If a firm can sell a product, but in order to sell that product the selling price will be less than its variable costs, then the sale should be made because at least the fixed costs will be covered.