A Manufacturer Contemplates a Change in Technology That Would Reduce

question 36

Multiple Choice

A manufacturer contemplates a change in technology that would reduce fixed costs from $800,000 to $600,000, and reduce depreciation expense from $125,000 to $100,000.However, the ratio of variable costs to sales will increase from 68 percent to 80 percent.What will happen to break-even level of revenues?

• A)A reduction to the level of $875,000
• B)A reduction to the level of $2,890,625
• C)An increase to the level of $3,500,000
• D)An increase to the level of $3,625,000 Break even = (600,00 + 100,000)/.2

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Definitions:

Supplies Account

An account that tracks the cost of supplies on hand and consumed by a business, which can be adjusted through adjusting entries for accurate financial reporting.

Adjusting Entry

An accounting entry made at the end of an accounting period to allocate income and expenditure to the correct period.

Prepayment Accounts

Accounts used to record expenses that have been paid in advance and are recognized incrementally as expenses over time.

Balance Sheet

A financial statement that displays a company's financial position at a specific point in time, including assets, liabilities, and shareholders' equity.