Question

QUESTION 11

Which of the following statements regarding fixed costs is incorrect?

		Expressing fixed costs on a per unit basis usually is the best approach for decision making.
		Fixed costs expressed on a per unit basis will decrease with increases in activity.
		Total fixed costs are constant within the relevant range.
		Fixed costs expressed on a per unit basis will increase with decreases in activity.

2.5 points   

QUESTION 12

The following data are available for the Phelps Corporation for a recent month:

	Product A			Product B			Product C		Total
Sales	$	150,000		$	130,000		$	90,000	$	370,000
Variable expenses		91,000			104,000			27,000		222,000
Contribution margin	$	59,000		$	26,000		$	63,000		148,000
Fixed expenses										55,000
Net operating income									$	93,000

The break-even sales for the month for the company is closest to:

		$148,000
		$137,500
		$91,667
		$203,000

Answer 1

	Sales revenue (A)	$370,000
	Variable cost (B)	$222,000
	Contribution margin (C)	$148,000
	Contribution margin ratio (D=C/A) = $148,000/$370,000	40%
	Fixed cost	$55,000
Ans	Brak even sales = Fixed cost/Contribution margin ratio $55,000/40% (E=$55,000/D)	$137,500
	Option (B) $ 137,500 is correct
	Fixed cost is period cost it’s not depend on number of units produced and generally fixed costs are not relevant for decision making up to certain period or range of units. Hence fixed cost per unit basis usually not best approach for decision making.
Ans	Expressing fixed costs on a per unit basis usually is the best approach for decision making.	Option 1
	All other three options are correct regarding fixed costs