Adios Company Provided the Following Information Regarding Its One and Only

question 10

Multiple Choice

Adios Company provided the following information regarding its one and only product -skateboards. $$\begin{array} { l l } \text { Direct materials used } & \$ 350,000 \\\text { Direct labor } & 170,000 \\\text { Fixed overhead } & 80,000 \\\text { Variable overhead } & 20,000 \\\text { Variable selling and administrative } & 50,000 \\\text { Units produced and sold } & 40,000\end{array}$$ The difference in manufacturing cost per unit, if the absorption approach is used in place of the contribution approach, is:

• A) cost per unit decreases by $0.75
• B) cost per unit increases by $2
• C) cost per unit decreases by $2
• D) cost per unit increases by $0.75

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Definitions:

Shareholder Wealth

The total value of a company to its shareholders, typically measured by the market capitalization or the equity value of the company.

Cost of Capital

The necessary yield a business must secure on its ventures to sustain its valuation in the marketplace and raise capital.

Cost of Equity

The return that investors require for their investment in a company, essentially the amount a firm must pay to retain its equity investors.

MIRR

Modified Internal Rate of Return; a financial metric that adjusts the traditional IRR to account for differences in reinvestment rates and financing costs.