Question

PART A The total variable costs for a food service operation with a variable cost per...

PART A

The total variable costs for a food service operation with a variable cost per meal of $5 and 1,000 projected meal sales would be?

  1. $4,000
  2. $1,000
  3. $5,000
  4. $3,000

PART B

The HRM Café’s average lunch sells for $12, while its variable costs per lunch average $8.00. It plans to advertise a Monday lunch special for $11. The special would cost HRM $7.75 per meal (variable costs). An ad in the local paper to promote the special would cost HRM $200.  How many lunch covers must be sold to cover the promotion of the average luncheon?

  1. 62 lunch covers
  2. 46 lunch covers
  3. 56 lunch covers
  4. 50 lunch covers

PART C

Variable costs are those costs which:

  1. remain the same despite increases or decreases in sales volume.
  2. related to the fixed assets of the business.
  3. increase or decrease as sales volume increases or decreases.
  4. increase or decrease as a range of activity increases or decreases.
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Homework Answers

Answer #1
Q.No. Correct Option Reason
Part A Correct Option C i.e. $5000 Total variable cost = variable cost per unit * no. of units (5*1000)
Part B Correct Option A i.e.. 62 Lunch covers Break even (Units)= Fixed cost / Contribution per unit
   =200/(11-7.75)
62
Part C Correct Option C ie. increase or decrease as sales volume increases or decreases. Variable cost means cost which is variable with the level of activity and remains constant per unit
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