Testor Paints Sells Varnish with a Variable Cost of $6

question 20

Multiple Choice

Testor Paints sells varnish with a variable cost of $6.50 per gallon. The company is unsure which price to charge in order to maximize profits. The price charged will also affect the demand. $$\begin{array} { c c } \text { Gallons Demanded } & \text { Unit Price Per Gallon } \\20,000 & \$ 11 \\30,000 & \$ 10 \\40,000 & \$ 9 \\50,000 & \$ 8\end{array}$$ If fixed costs are $80,000 and the chart above represents the demand at various prices, what price should be charged in order to maximize profits?

• A) $11
• B) $10
• C) $9
• D) $8

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Definitions:

Current Ratio

A financial ratio that measures a company's ability to pay off its short-term liabilities with its short-term assets, providing a snapshot of financial health.

Short-Term Debt Paying Ability

Measures a company's capacity to meet its short-term obligations using its current assets.

Receivables Turnover

A financial metric that measures how efficiently a company collects cash from its credit sales by dividing credit sales by the average accounts receivable.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.