Micro Enterprises Has the Capacity to Produce 10,000 Widgets

question 7

Multiple Choice

Micro Enterprises has the capacity to produce 10,000 widgets a month,and currently makes and sells 9,000 widgets a month.Widgets normally sell for $6 each,and cost an average of $5 to make,including fixed costs.The monthly fixed costs are $18,000.Coyote has offered to buy 1,500 widgets (all or nothing) for $4 each. The accountant has determined that the excess production (beyond capacity) can be accommodated in the short term by incurring an incremental (fixed) cost of $800.
Should Coyote's offer be accepted?

• A)No,because it will lose $1 per unit
• B)No,because the opportunity costs are less than the gains
• C)Yes,because the contribution from the sale exceeds the incremental costs
• D)Yes,because it makes $1 per unit in the short run
• E)Unable to determine

Understand and apply the concept of working capital, quick ratio, and current ratio.

Knowledge of recording and calculating interest on notes payable and receivable.

Distinguish between different types of liabilities and their disclosures in financial statements.

Comprehend and execute the journalization of various types of notes.