The Childers Company breaks even at an annual sales volume of 75,000 units. Actual annual sales volume was 100,000 units, and the company reported ope... Accounting MCQs | Accounting MCQs

The Childers Company breaks even at an annual sales volume of 75,000 units. Actual annual sales volume was 100,000 units, and the company reported operating income of $200,000. The annual fixed costs for the Childers Company are

$800,000$600,00075,000Insufficient information to determine amount of fixed costs.Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (B) is correct. Operating income increased by $200,000 when the sales volume exceeded the BEP by 25,000 units. This increase in profit is a result of an increase in the contribution margin (sales – variable costs). Unit contribution margin is $8 ($200,000 ÷ 25,000 units). The BEP in units is equal to fixed costs divided by the UCM. Fixed costs ÷ UCM = BEP
Fixed costs ÷ $8=75,000
Fixed costs=$600,000 ,