Suppose You Are a Manager of a Factory

question 169

Multiple Choice

Suppose you are a manager of a factory.You purchase five (5) new machines at one million dollars each.If you can resell two of the machines for $500,000 and three of the machines for $200,000,what are the sunk costs of purchasing the machines?

• A) $5 million
• B) $500,000
• C) $3.4 million
• D) $1.6 million

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Definitions:

Direct Materials

Raw materials that are directly traceable to the manufacturing of a specific product and included in the product's cost calculation.

Break-Even Point

The level of production or sales volume at which total revenues equal total costs, resulting in zero profit or loss.

Contribution Margin Ratio

The ratio of contribution margin to sales revenue, indicating the percentage of each sales dollar available to cover fixed costs and generate profit.

Contribution Margin Ratio

A financial metric that measures how much of a company's revenue is available to cover its variable costs and contribute to its fixed costs.