Two Firms, C and D, Both Produce Coat Hangers

question 47

Multiple Choice

Two firms, C and D, both produce coat hangers.The price of coat hangers is $1.20 each.Firm C has total fixed costs of $750,000 and variable costs of 30'per coat hanger.Firm D has total fixed costs of $400,000 and variable costs of 50' per coat hanger.The corporate tax rate is 40%.If the economy is strong, each firm will sell 2,000,000 coat hangers.If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy enters a recession, the tax of firm C will be

• A)$1,680,000.
• B)$750,000.
• C)$510,000.
• D)$204,000.

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Definitions:

Normal Capacity

The average level of operational output that can be sustained over a period under normal conditions, taking into account regular downtime and maintenance.

Standard Costs

Standard costs are predetermined or estimated prices used to measure the efficiency of operations and the performance of a company against set benchmarks.

Financial Statements

Formal records of the financial activities and position of a business, individual, or other entity, including the balance sheet, income statement, and statement of cash flows.

Overhead Controllable Variance

The difference between the actual overhead incurred and the overhead that management expected or budgeted for, which is within their control.