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:

Activity Rates

The costs assigned to a cost-driving activity, used in activity-based costing to allocate expenses to products or services.

Activity-based Factory Overhead

A method of allocating overhead costs based on each product's activities, aiming to accurately distribute expenses related to manufacturing.

Activity-based Costing

A costing method that identifies activities in a company and assigns the cost of each activity to all products and services according to the actual consumption by each.

Shipping and Handling Activity

The process of preparing, packaging, and delivering goods to a destination.