Vandelay Industries Manufactures a Range of Latex Products

question 112

Multiple Choice

Vandelay Industries manufactures a range of latex products. Vandelay recently purchased new equipment to manufacture latex gloves for the medical community. The new machinery leases for $70,000 annually and can produce 10,000 pairs of gloves each day. The raw latex material for each pair of gloves costs $.03 and Vandelay sells the gloves at a wholesale price of $.10 a pair. Currently, sales are 2,500,000 annually. What is the profit on the gloves if the machinery lease is the only fixed cost considered?

• A) $105,000
• B) $250,000
• C) $75,000
• D) $175,000

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Definitions:

Nominal Rate of Return

The rate of return on an investment without adjusting for inflation.

Real Future Value

The measure of the future value of an investment or stream of cash flows, adjusted for inflation, to reflect the actual purchasing power of that future amount.

Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Deposit Insurance

Deposit Insurance is a protection scheme for bank depositors that guarantees the safety of deposits in member banks, up to a certain limit, in the event of a bank failure.