A Company Has Fixed Costs of $900 and a Per-Unit

question 11

Multiple Choice

A company has fixed costs of $900 and a per-unit contribution margin of $3. Which of the following statements is true?

• A) Each unit "contributes" $3 toward covering the fixed costs of $900.
• B) The situation described is not possible and there must be an error.
• C) Once the break-even point is reached; the company will increase income at the rate of $3 per unit.
• D) The firm will definitely lose money in this situation.
• E) Each unit "contributes" $3 toward covering the fixed costs of $900 and once the break-even point is reached, the company will increase income at the rate of $3 per unit.

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Definitions:

Inventory Cost

The total cost associated with buying or producing goods, including purchase price, materials, labor, and overhead, until they are sold.

Sales

The activities involved in selling goods or services to customers, including the negotiation of sales agreements and the collection of revenue.

Credit Memo

A document issued to a purchaser by a vendor to reduce the amount that the purchaser owes, often as a result of a return or refund.

Gross Profit

The difference between the revenue earned from sales and the cost of goods sold, not accounting for other expenses.