Mullis Corp

question 80

Multiple Choice

Mullis Corp. manufactures DVDs that sell for $5.00. Fixed costs are $28,000 and variable costs are $3.60 per unit. Mullis can buy a newer production machine that will increase fixed costs by $8,000 per year, but will decrease variable costs by $0.40 per unit. What effect would the purchase of the new machine have on Mullis' break-even point in units?

• A) 9,850 unit decrease.
• B) 4,444 unit increase.
• C) 5,714 unit increase.
• D) No effect.
• E) 4,444 unit decrease.

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Definitions:

Net Operating Income

The total profit of a company after all operating expenses are subtracted from total revenues but before deducting taxes and interest.

Absorption Costing

An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a unit of a product.

Net Operating Income

The total profit of a company after operating expenses are subtracted from operating revenues, but before deducting taxes and interest.

Net Operating Income

A measure of a property's profitability, calculated by subtracting all operating expenses from the gross operating income.