Nance Corporation Is About to Introduce a New Product

question 355

Multiple Choice

Nance Corporation is about to introduce a new product. The following costs would be incurred if 40,000 units are produced and sold each year: Nance Corporation uses the absorption costing approach to cost-plus pricing as described in the text.After introducing the product, the company finds that it has excess capacity. A foreign dealer has offered to purchase 5,000 units of the product at a special price of $21 per unit. This sale would not disturb regular business. If the special price is accepted on the 5,000 units, the effect on total net income for the year should be:

• A) $45,000 increase
• B) $30,000 increase
• C) $5,000 increase
• D) $26,250 decrease

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Definitions:

Balance Sheet Accounts

These are the accounts that reflect the financial position of a business at a specific point in time, including assets, liabilities, and equity.

Investing Activities

Transactions involving the purchase and sale of long-term assets and other investments, not including those classified as cash equivalents.

Cash Dividend

A distribution of earnings given by a company to its stockholders, often as a share of profits.

Balance Sheet

A financial statement that provides a snapshot of a company’s financial condition at a specific moment in time, showing assets, liabilities, and shareholders' equity.