Question 1

If a firm's total fixed cost is $400,000 and its fixed-cost contribution per unit is $10,its break-even in units is

Accepted Answer

The BEP,in units,can be found by dividing total fixed costs (TFC)by the fixed-cost (FC)contribution per unit.

Question 2

In a typical break-even analysis,a firm's fixed-cost contribution per unit

Accepted Answer

The fixed cost (FC)contribution per unit is the assumed selling price per unit minus the variable cost per unit.

Question 3

Which of the following statements correctly reflects the relationships among quantity,cost,and price,based on the cost-oriented pricing model?

Accepted Answer

Refer to Exhibit 18-7.Cost-oriented pricing requires an estimate of the total number of units to be sold.That estimate determines the average fixed cost per unit and thus the average total cost.

Question 4

Which of the following is a weakness of the average-cost approach?

Accepted Answer

One of the dangers of average-cost pricing is that it ignores competitors' costs and prices.

Question 5

Which of the following statements about the break-even point (BEP)is true?

Accepted Answer

The break-even point (BEP)is the quantity at which the firm's total cost will just equal its total revenue.

Question 6

You are considering opening a fast-food store.Your fixed costs for the required land,building,parking lot paving,kitchen equipment,and neon sign will be $1,000,000.The variable cost will be $1.89 for servings,which will sell for $2.89.How many servings must you sell to break even?

Accepted Answer

The BEP,in units,can be found by dividing total fixed costs (TFC)by the fixed-cost (FC)contribution per unit.The fixed-cost (FC)contribution per unit is the assumed selling price per unit minus the variable cost per unit.

Question 7

Average fixed costs

Accepted Answer

Average fixed cost goes down steadily as the quantity increases.

Question 8

When a firm's average variable cost is constant no matter how much is produced,

Accepted Answer

When the average variable cost remains the same,average cost decreases continually as the quantity produced increases.

Question 9

The BEP,in units,can be found by dividing

Accepted Answer

The BEP,in units,can be found by dividing total fixed costs (TFC)by the fixed-cost (FC)contribution per unit.

Question 10

A company that produces baseball caps has fixed costs of $100,000,and total variable costs of $40,000 for a production volume of 20,000 units.The average variable cost per unit is

Accepted Answer

Average variable cost (per unit)is obtained by dividing total variable cost by the related quantity: $40,000 ÷ 20,000 = $2.00 per unit.

Question 11

The big problem with average-cost pricing is that

Accepted Answer

Ignoring demand is the major weakness of average-cost pricing.

Question 12

Average-cost pricing

Accepted Answer

Average-cost pricing works well if the firm actually sells the quantity it used to set the average-cost price.Losses may result,however,if actual sales are much lower than expected.If sales are much higher than expected,then profits may be very good.But this will only happen by luck,because the firm's demand is much larger than expected.

Question 13

The total fixed costs are $10,000,and the average variable cost per unit is $3.For a production volume of 10,000 units,the average cost per unit is

Accepted Answer

Average cost (per unit)is obtained by dividing total cost by the related quantity.

Question 14

A firm's break-even point is that point at which

Accepted Answer

The break-even point (BEP)is the quantity at which the firm's total cost will just equal its total revenue.

Question 15

The major weakness of average-cost pricing is that it

Accepted Answer

Ignoring demand is the major weakness of average-cost pricing.

Question 16

A cutlery manufacturer producer produces 200 units of output at a total cost of $1,500.If total variable costs are $500,the average variable cost (per unit)is

Accepted Answer

Average variable cost (per unit)is obtained by dividing total variable cost by the related quantity: $500 ÷ $200 = $2.50.

Question 17

A college "marketing club" printed 1,000 "We're Number 1" bumper stickers for sale at $3.00 each as a fund-raiser.Its fixed costs were $500,and the variable cost for each sticker was $0.50.The club's average cost per unit was

Accepted Answer