Process X Has Fixed Costs of $10,000 and Variable Costs

question 42

Multiple Choice

Process X has fixed costs of $10,000 and variable costs of $2.40 per unit. Process Y has fixed costs of $9,000 and variable costs of $2.25 per unit. Which of the following statements is true?

• A) The crossover point is approximately 6667 units.
• B) It is impossible for one process to have both of its costs lower than those of another process.
• C) Process Y is cheaper than process X at all volumes; there is no crossover point.
• D) Process X should be selected for very large production volumes.
• E) Process X is more profitable than process Y and should be selected.

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Definitions:

Liabilities

Financial obligations of a business that represent claims against its assets by outsiders.

Stockholders' Equity

Represents the ownership interest of shareholders in the assets of a company, calculated as total assets minus total liabilities.

Creditors' Risk

The risk to lenders that a borrower will not repay a loan or other credit extended, potentially leading to financial loss.

Liabilities

Economic dues a company is obligated to clear with others, which involves dispensing economic benefits progressively over time.