Sutton Company Produces Flash Drives for Computers, Which It Sells

question 89

Multiple Choice

Sutton Company produces flash drives for computers, which it sells for $20 each.Each flash drive costs $6 of variable costs to make.During April, 1,000 drives were sold.Fixed costs for April were $4.20 per unit for a total of $4,200 for the month.If variable costs decrease by 10%, what happens to the break-even level of units per month for Sutton Company?

• A)It is 10% higher than the original break-even point.
• B)It decreases about 12 units.
• C)It decreases about 30 units.
• D)It depends on the number of units the company expects to produce and sell.

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Definitions:

Rationing

Allocating a limited supply of a good or resource among people who would like to have more of it. When price performs the rationing function, the good or resource is allocated to those willing to give up the most “other things” in order to get it.

Scarcity

The essential economic dilemma revolves around the vastness of human aspirations contrasted with the limitations of available resources.

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.

Scarcity

A fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.