A Firm Has Fixed Operating Costs of $25,000, a Per

question 144

Multiple Choice

A firm has fixed operating costs of $25,000, a per unit sales price of $5, and a variable cost per unit of $3. What is its operating break-even point if it desires net operating income of $10,000, not $0 (zero) ?

• A) 15,000 units
• B) 17,500 units
• C) 12,500 units
• D) 25,000 units

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Definitions:

Net Operating Income

Earnings from a company's core business operations, excluding deductions for interest and taxes.

Gross Margin

represents the difference between revenue and cost of goods sold divided by revenue, showcasing the percentage of sales that exceeds the cost of goods sold.

Arbitrary Allocation

The distribution of indirect costs to specific cost objects without a clear or direct basis, often based on convenience or convention rather than actual usage or benefits derived.

Common Cost

A cost that is incurred to support a number of cost objects but that cannot be traced to them individually. For example, the wage cost of the pilot of a 747 airliner is a common cost of all of the passengers on the aircraft. Without the pilot, there would be no flight and no passengers. But no part of the pilot’s wage is caused by any one passenger taking the flight.