Problem 1. Fast Delivery Company delivers packages and business documents for local businesses located in the Houston metropolitan area. If the company decided to adopt an ABC costing system to accumulate costs for its service, what would be an appropriate cost driver to use for the cost of the original pick-up order?
a. Number of miles to be driven in the delivery
b. Number of drivers on the truck
c. Number of packages
d. Number of orders
Problem 2: If a company is currently operating at its breakeven point, which of the following statements is true? (Income tax considerations are ignored.)
a. If fixed costs increase, net income will decrease by the contribution margin ratio times the amount of the increase in fixed costs.
b. If sales increase by 20%, net income will also increase by 20%, assuming that fixed costs are not equal to zero.
c. If variable costs double, net income will decrease by 50%.
d. Net income will decrease by the decrease in number of units sold times the contribution margin per unit.
Problem 3: Which of the following situations would most likely violate cost-volume-profit assumptions about fixed costs?
a. When production volume increases beyond the capacity of the plant, a second shift will be added instead of building a new plant.
b. As volume decreases, per unit fixed manufacturing overhead remains constant.
c. The company's raw material supplier typically allows volume discounts when larger amounts of the raw material are purchased.
d. Fixed costs per unit decrease as volume increases.