Downs Co Sells a Single Product for $20 Per Unit

question 43

Multiple Choice

Downs Co sells a single product for $20 per unit. Fixed costs are $85 000 and variable costs equal 60% of sales. If fixed costs increase by $20 000, Downs Co will have to increase sales by how much just to earn profits equal to those earned before costs increased?

• A) $12 000
• B) $20 000
• C) $42 000
• D) $50 000

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Definitions:

Variable Overhead

Costs that vary with the level of output, such as utilities and labor, as opposed to fixed overheads.

Actual Direct Labour Hours

The actual time spent by labor directly involved in the production of goods or service delivery.

Direct Labour Rate Variance

The difference between the actual labor costs incurred and the standard labor costs for the actual production achieved.

Standard Quantity

The predetermined amount of material or inputs expected to be used in the production of a product or service.