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Multiple Choice Questions

Standard costing

A level and AS level


A company makes a product for which the following information is given.

-selling price: $100 per unit
-direct materials: $ 40 per unit
-direct labour: $ 30 per unit

Total fixed costs are $40 000. Planned production is 1000 units.

Which action should the company take to breakeven?

A decrease direct labour cost by 30%
B decrease direct material cost by 25%
C increase direct labour cost by 30%
D increase direct materials cost by 25%

Answer: B

Decrease in Direct material by 25% increases contribution by $10, new contribution would be,
($100 = $30 - $30) =$40.

Total contribution would become (1000 units x $40) = $40,000

Break even is when total contribution equals total fixed costs.

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