Total fixed costs for Diamond Enterprises are $800,000. Total costs, including both fixed and variable, are $890,000

| March 29, 2017

Question
1. Total fixed costs for Diamond Enterprises are $800,000. Total costs, including both fixed and variable, are $890,000 if 120,000 units are produced. What would be the fixed cost per unit at 200,000 units?

$4.00 per unit

$7.42 per unit

$4.45 per unit

$0.45 per unit

2. The operating leverage is 4. If production increases by 25%, how will total fixed costs likely react?

Increase by 12.5%

Increase by 25%

Decrease by 25%

Remain the same

3. Under what conditions should a manager always reject a special order?

the special order price is less than the variable costs of the order.

there is available excess capacity.

the special order price is less than the regular sales price.

the special order will require variable nonmanufacturing expenses.

4. Pluto has an operating capacity of 10,000 units and sells a single product with the following regular sales price and cost structure on a per unit basis at the operating capacity:

Per unit

Sales

$100

Variable cost

80

Fixed costs

2

Pluto’s current production level is 9,900 units. Suppose Pluto receives a special offer to sell 200 units at $110 per unit. By how much will net income change if Pluto were to accept the special offer and substitute away from current customers by the required amount?

$1,000

$2,000

$3,000

$4,000

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