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    Holding all other factors constant, the break-even point will be decreased by
    a. increasing the fixed costs.
    b. decreasing the contribution margin.
    c. increasing the selling price.
    d. increasing the variable cost per unit.

    Louie's Lunch Counter's employees know that they serve three meat and potatoes lunches for every two soup and salad lunches on a typical day. The variable costs for a meat and potatoes lunch total $3.30, while the variable costs for the soup and salad lunch are $2.85. The price for any lunch is $5.75. If fixed costs are $120,802, how many lunches must be sold for Louie's to earn a profit of $77,520?

    a. 57,485
    b. 42,387
    c. 38,509
    d. 61,400

    Just Rain Company produces two models, Wind and Hail, using Thor, a new manufacturing process. Information regarding Wind and Hail is summarized in the following table:

    Wind Hail
    Price per unit $80 $60
    Variable cost per unit $50 $30
    Amount of Thor processing time
    required per unit 6 hours 2 hours

    Thor can only be used for 120 hours per wek. Should Just Rain produce Wind or Hail?

    a. The company is indifferent between the two products, since the contribution margin per unit is the same.
    b. The company should produce Wind because the total contribution margin will be $600.
    c. The company should produce Hail because the total contribution margin will be $1,800.
    d. The problem does not provide enough information to make a decision.

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    Solution Preview

    Hello

    Please see the response as below. Answers and explanations are given next to each question.

    Thank You

    1. Holding all other factors constant, the break-even point will be decreased by
    a. increasing the fixed costs.
    b. decreasing the contribution margin.
    c. increasing the selling price.
    d. increasing the variable cost per unit.
    Key: Break even point is given by fixed cost divided contribution margin.
    Increasing fixed cost (numerator) will increase break-even point
    Decreasing contribution margin (denominator) will increase break-even point
    Increasing selling price will increase the contribution margin (denominator) and in turn will decrease break-even point
    Increasing variable cost per unit will decrease contribution margin (denominator) and in turn will increase break-even point

    Answer is c

    2. Louie's Lunch Counter's employees know that they serve three meat and potatoes lunches for every two ...

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