Multiple choice

The following information applies to Questions 1 and 2. 

DH Manufacturing produces a single product that sells for $8. Variable (flexible) costs per unit equal $3.20. The company expects the total fixed (capacity-related) costs to be $7,200 for the next month at the projected sales level of 20,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. 

1. What is the current break-even point in terms of number of units for the next month? 

1,500 units 

2,250 units 

3,333 units 

None of the above is correct. 

2. Suppose that DH Manufacturing’s management believes that a $1,600 increase in the monthly advertising expense will result in a considerable increase in sales. How much must sales increase in a month to justify this additional expenditure? 

200 units 

334 units 

500 units 

None of the above is correct. 

3. A favorable cost variance of significant magnitude: 

is the result of good planning 

may lead to improved production methods if it is investigated 

indicates that management does not need to be concerned about lax standards 

does not need to be investigated 

4. A flexible budget contains: 

cost targets for actual output 

cost targets for planned output 

the difference between planned and actual output 

actual costs for actual output