Kramer Manufacturing produces blenders. Its total fixed costs are $30,000. Its variable costs are $55.00 per blender.

273) A company has fixed costs of $60,000 per month. If sales double from 6,000 to 12,000 units during the month, fixed costs in total will
A) double.
B) remain the same.
C) be cut in half.
D) be none of the above.
Answer:  B
Diff: 2
LO:  2-7
EOC:  E2-48B
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits

274) A company produces toy airplanes at a variable cost of $23 per toy. If 7,000 toys are produced at a total variable cost of $161,000, the total variable cost at 4,500 toys will be
A) $161,000.
B) $23.
C) $103,500.
D) $264,500.
Answer:  C
Explanation:  C) Calculations: 4,500 × $ 23.00 = $103,500
Diff: 2
LO:  2-7
EOC:  E2-48B
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits


275) Kramer Manufacturing produces blenders. Its total fixed costs are $30,000. Its variable costs are $55.00 per blender. As production of blenders increases (within the relevant range), fixed costs will
A) stay the same per unit.
B) decrease as production increases.
C) decrease per unit as production increases.
D) increase as production decreases.
Answer:  C
Diff: 2
LO:  2-7
EOC:  E2-48B
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
276) A company's total costs are calculated by
A) subtracting total fixed costs from total variable costs.
B) subtracting total variable costs from total fixed costs.
C) subtracting total fixed costs and total variable costs from sales.
D) adding total fixed costs to total variable costs.
Answer:  D
Diff: 1
LO:  2-7
EOC:  E2-48B
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits

277) On the line in front of each statement, enter the letter corresponding to the term that best fits that statement. You may use a letter more than once and some letters may not be used at all.

A.    Direct costs    E.    Variable costs
B.    Marginal cost    F.    Indirect cost
C.    Average cost    G.    Sunk cost
D.    Conversion costs    H.    Differential cost


___    The total cost divided by the total volume.
___    The difference in cost between two alternative courses of action.
___    The combination of direct labor and manufacturing overhead costs.
___    The cost of producing one more unit.
___    Costs that can be traced to the cost object.
Answer:  C, H, D, B, A
Diff: 2
LO:  2-7
EOC:  E2-29A
AACSB:  Reflective Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
278) Differentiate between fixed and variable costs and give an example of each.
Answer:  Fixed costs stay constant in total over a wide range of activity levels. For instance, the rent on a factory is the same whether 10,000 products are produced each month or 1,000 products are produced. Variable costs change in total in direct proportion to changes in volume. If the variable cost of producing one item is $1, and if 10,000 units are produced, the cost will be $10,000 and if only 1,000 units are produced, the cost will be only $1,000.
Diff: 2
LO:  2-7
EOC:  E2-30A
AACSB:  Reflective Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
279) Getting to school for your 8 a.m. class doesn't leave much time for breakfast, and you are quite hungry by the time class ends. It is a long walk to the cafeteria, the lines are long once you get there, and you find yourself having to decide between having breakfast and getting to your next class on time. Many of your friends have expressed the same problem. The administration has agreed to let you set up a table just outside the building where you will sell various snacks for $1 each. You have agreed to pay the administration $400 per month and salaries to your friends to run the business will be another $400 per month. It will cost you 60 cents each to buy the pre-packaged snacks. You believe you can sell 2,500 snack packs per month.

a.    What are the total fixed costs per month?
b.    What are the total variable costs per month?
c.    What is the fixed cost per snack pack?
d.    What is the variable cost per snack pack?
e.    What is the average cost per snack pack?
f.    What is the average profit margin per snack pack?
g.    Based on your analysis, should you start the snack pack business?
Answer: 
a.    $800 ($400 + $400)
b.    $1,500 (60 cents × 2,500 snack packs)
c.    32 cents ($800/2,500 snack packs)
d.    50 cents (given in the problem)
e.    $0.82
f.    $0.18 ($1 - 50 cents - 32 cents)
g.    Yes, I will make 18 cents per snack pack and if I sell 2,500 I will make a profit of $450.
Diff: 2
LO:  2-7
EOC:  E2-48B
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits


280) How are average cost and marginal cost computed?
Answer:  The average cost is the total cost divided by the number of units produced. Marginal cost is the cost of making one more unit.
Diff: 1
LO:  2-7
EOC:  E2-29A
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits