MINI-CASE Smith Automotive Is a Company That Produces Component Parts for for Automobile

question 54

Multiple Choice

MINI-CASE
Smith Automotive is a company that produces component parts for automobile engines.A margin of $4 per unit produces fixed expenses of $80 million.The market demand for the component parts is 400 million units per year.
-Mini-Case Question.Calculate the break-even market share if the break-even volume is 40 million units.

• A)5%
• B)10%
• C)12.5%
• D)15%
• E)20%

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Definitions:

Initial Value Method

An accounting approach where investments are reported at their acquisition cost without subsequent adjustment for changes in market value.

Goodwill

An intangible asset on a company's balance sheet that arises when a company acquires another for a price higher than the fair value of its net tangible assets.

Retained Earnings

The portion of net income that is not distributed as dividends to shareholders, but rather reinvested in the business or kept as reserve.

Equity Method

A method of accounting employed by a business to log its investment in another firm when it possesses considerable sway but lacks complete authority.