Hug Me Company produces dolls. Each doll sells for $20.00. Variable costs per unit total $14.00, of which $6.25 is for direct materials and $5.25 is for direct labor. If the break- even volume in dollars is $1,446,000, then the total fixed costs for the period must be:
A) $1,446,000
B) $433,800
C) $361,500
D) $516,425

Question

Quizplus · Accepted Answer

Explanation:The break-even volume in dollars is equal to the total fixed costs divided by the contribution margin per unit. The contribution margin per unit is equal to the selling price per unit minus the variable costs per unit. Therefore, the total fixed costs must be equal to the break-even volume in dollars multiplied by the contribution margin per unit.In this case, the break-even volume in dollars is $1,446,000 and the contribution margin per unit is $20.00 - $14.00 = $6.00. Therefore, the total fixed costs must be $1,446,000 x $6.00 = $433,800.

Hug Me Company Produces Dolls