Baden Company Manufactures a Product with a Unit Variable Cost

question 29

Multiple Choice

Baden Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

• A) Income would decrease by $8,000.
• B) Income would increase by $8,000.
• C) Income would increase by $140,000.
• D) Income would increase by $40,000.

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Definitions:

Depository Institution

A financial institution legally allowed to accept monetary deposits from consumers, such as banks and credit unions.

Required Reserve Ratio

The fraction of deposits that banks are required to hold in reserve, either in their vaults or at the central bank, to ensure that they can meet withdrawal demands.

Simple Money Multiplier

A formula that estimates the maximum amount of money that banking can generate with each dollar of reserves.

Required Reserve Ratio

The fraction of deposits that banks are required by law to keep on hand or with the central bank, rather than lend out.