SOLVED

Section 3Â Â Break-Even Analysis 1) Fixed costs are those costs that continue even if no units are produced. 2) Break-even analysis identifies the volume at which fixed costs and revenue are equal. 3) Break-even analysis is a powerful analytical tool, but is useful only when the organization produces a single product. 4) Break-even is the number of units at which: A) total revenue equals price times quantity. B) total revenue equals total variable cost. C) total revenue equals total fixed cost. D) total profit equals total cost. E) total revenue equals total cost. 5) Which of the following statements regarding fixed costs is TRUE? A) Fixed costs rise by a constant amount for every added unit of volume. B) While fixed costs are ordinarily constant with respect to volume, they can “step” upward if volume increases result in additional fixed costs. C) Fixed costs are those costs associated with direct labor and materials. D) Fixed costs equal variable costs at the break-even point. E) Fixed cost is the difference between selling price and variable cost. 6) Which of the following costs would be incurred even if no units were produced? A) raw material costs B) direct labor costs C) transportation costs D) building rental costs E) purchasing costs 7) Basic break-even analysis typically assumes that: A) revenues increase in direct proportion to the volume of production, while costs increase at a decreasing rate as production volume increases. B) variable costs and revenues increase in direct proportion to the volume of production. C) both costs and revenues are made up of fixed and variable portions. D) costs increase in direct proportion to the volume of production, while revenues increase at a decreasing rate as production volume increases because of the need to give quantity discounts. E) All of the above are assumptions in the basic break-even model. 8) Fabricators, Inc. wants to increase capacity by adding a new machine. The fixed costs for machine A are $90,000, and its variable cost is $15 per unit. The revenue is $21 per unit. What is the break-even point for machine A? A) $90,000 dollars B) 90,000 units C) $15,000 dollars D) 15,000 units E) 4,286 units 9) Break-even analysis can be used by a firm that produces more than one product, but: A) the results are estimates, not exact values. B) the firm must allocate some fixed cost to each of the products. C) each product has its own break-even point. D) the break-even point depends upon the proportion of sales generated by each of the products. E) None of these statements is true. 10) The basic break-even model can be modified to handle more than one product. This extension of the basic model requires: A) price and sales volume for each product. B) price and variable cost for each product, and the percent of sales that each product represents. C) that the firm have very low fixed costs. D) that the ratio of variable cost to price be the same for all products. E) sales volume for each product.