Rom Generators Is in the Process of Preparing a Production

question 102

Multiple Choice

Rom Generators is in the process of preparing a production cost budget for August. Actual costs in July for the production of 60 generators were: $\begin{array}{ll}\text { Materials cost } & \$ 5,200 \\\text { Labor cost } & 2,600 \\\text { Rent } & 1,200 \\\text { Depreciation } & 1,700 \\\text { Other fixed costs } & 4,600\\\text { Total } & \$ 15,300 \\\end{array}$ Materials and labor are the only variable costs. The company has estimated that it can increase sales to 70 generators in August if it changes the selling price of generators to $450 instead of the current $480 per unit. What is expected to occur to the cost per unit given the expected changes?

• A) It will decline because fixed costs do not increase with increases in volume.
• B) It will decline because selling price per unit declines.
• C) It will increase because more units will be produced.
• D) It will increase because fixed costs do not increase with increases in volume.

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Definitions:

Net Income

The total profit of a company after all expenses, taxes, and deductions have been subtracted from total revenue.

Balance Sheet

A financial statement that provides a snapshot of a company's financial condition at a specific time, showing assets, liabilities, and shareholder equity.

Vertical Integration

A method by which a firm broadens its activities to cover multiple points within its production sequence, like when a manufacturing entity possesses its supplier and/or distribution channels.

Ethical Supply Management

The practice of ensuring that the supply chain operations adhere to ethical standards, including fairness, sustainability, and respect for human rights.