A firm with constant variable costs has a survival revenues breakeven of $375,000. This year, it had $250,000 in sales, $100,000 of which was a fixed cost. What are the firm's cash fixed costs?
A)$150,000
B)$225,000
C)$625,000
D)$937,500

Question

Quizplus · Accepted Answer

The firm's cash fixed costs are the difference between its survival revenues breakeven and its variable costs. Since the survival revenues breakeven is $375,000 and the firm had $250,000 in sales with $100,000 being fixed costs, the variable costs are $150,000 ($250,000 - $100,000). Therefore, the cash fixed costs are $225,000 ($375,000 - $150,000), which is incorrect based on my initial calculation. The correct interpretation is that the survival revenues breakeven point includes both variable costs and fixed costs. Given that the firm's total sales were $250,000 and assuming all of it would contribute to covering variable costs and fixed costs, the fixed costs are directly given as $100,000. This is a misunderstanding in the explanation process. The correct answer, based on the information provided, should reflect the firm's fixed costs as they are directly mentioned, which is $100,000. However, the question asks for cash fixed costs, which is not directly calculable from the given information without making assumptions about the nature of the fixed costs and their relation to cash expenses. My initial explanation mistakenly attempted to recalculate variable and fixed costs from the given data, but the question's phrasing does not align with the standard approach for calculating cash fixed costs directly from the provided figures. The correct interpretation should focus on understanding the definition of cash fixed costs in the context of the question, which seems to imply a direct inquiry about the firm's known fixed costs or an understanding of how survival revenue breakeven impacts the calculation of cash fixed costs. Given the data, there's a misunderstanding in the calculation process, and the correct answer should be reconsidered based on the question's intent and the provided financial figures.

A Firm with Constant Variable Costs Has a Survival Revenues