KMW Inc Sells Finance Textbooks for $150 Each

question 43

Multiple Choice

KMW Inc. sells finance textbooks for $150 each. The variable cost per book is $30 and the fixed cost per year is $30,000. The process of creating a textbook costs $150,000 and the average book has a life span of three years. What is the economic or NPV break-even number of books that must be sold each year given a discount rate of 12 percent?

• A)156
• B)191
• C)235
• D)771

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Definitions:

Capacity

The maximum level of output that a company can sustain to make a product or provide a service under normal conditions.

Absorption Costing

A financial recording technique that incorporates all costs associated with manufacturing (such as direct materials, direct labor, along with variable and fixed overhead expenses) into the product's cost.

Variable Costing

An accounting method that includes only variable costs - costs that change with production levels - in product costs.

Income

The financial gain received by an individual or a business, typically earned through work, capital investment, or the provision of goods and services.