A Company Faces Fixed Costs of $100,000 and Variable Costs

question 126

Multiple Choice

A company faces fixed costs of $100,000 and variable costs of $8.00/unit.It plans to directly sell its product to the market for $12.00.How many units must it produce and sell to break even?

• A) 20,000
• B) 25,000
• C) 40,000
• D) 50,000
• E) not enough information to calculate

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Definitions:

Residual Income

Income that remains after all operating expenses and costs of capital have been deducted from net operating income.

Profit Centre

A segment of a business that is responsible for both generating revenue and controlling costs, thereby directly influencing its own profitability.

Residual Income

Earnings generated beyond the minimum rate of return expected by a company or its investors, often used as a performance measure.

Gross Margin

The difference between sales revenue and the cost of goods sold, expressed as a percentage.