Answer:
a. Some examples of fixed costs are; Insurance, utility charges, and Rent.
b. Variable cost=$1,280
c. Fixed costs=$1,000,000
d. Break-even level of units=521 units
e. Break-even level of sales=$1,667,200
Explanation:
a.
Fixed costs are the expenses that do not change with the level of output, while the variable costs depend on the amount of output produced. The fixed costs typically stay the same with the production levels. The variable costs on the other hand change as the production changes.
Some examples of fixed costs in a typical manufacturing plant are;
1. Insurance
2. Utility charges
3. Rent
4. Property taxes
b.
The variable costs are the Material and labor costs, since a higher or a lower level of output will affect the quantity of materials and labor needed. Thus their costs change with the output.
Variable cost=material cost+labor costs=$1,280
c.
The fixed costs=$1,000,000 since they don't vary with the sales. Sales is a direct function of the output.
d. The break even point is the point at which the Revenue from sales equal the costs. This can be expressed as;
Revenue=price per unit×number of units sold
where;
price per unit=$3,200
number of units sold=n
replacing;
Revenue=3,200×n=3,200 n
Total cost=fixed cost+(cost per unit×number of units)
fixed cost=$1,000,000
cost per unit=$1,280
number of units=n
replacing;
Total costs=1,000,000+(1,280×n)=1,280 n+1,000,000
Since at break-even point, revenue equals cost;
3,200 n=1,280 n+1,000,000
3,200 n-1,280 n=1,000,000
1,920 n=1,000,000
n=1,000,000/1,920
n=520.83
n=521
Number of units is approximately 521 at break-even
Break-even level of units=521 units
e.
Break-even sales=price per unit×break-even level of units
where;
price per unit=$3,200
break-even level of units=521 units
replacing;
Break-even level of sales=3,200×521=$1,667,200
