Spencer Tools Would Like to Offer a Special Product to Its

question 26

Multiple Choice

Spencer Tools would like to offer a special product to its best customers. However, the firm wants to limit its maximum potential loss on this product to the firm's initial investment. The fixed costs are estimated at $27,400, the depreciation expense is $1,700, and the contribution margin per unit is $6.75. What is the minimum number of units the firm should pre-sell to ensure its potential loss does not exceed the desired level?

• A) 3,220 units
• B) 4,059 units
• C) 2,815 units
• D) 4,233 units
• E) 4,658 units

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Definitions:

Voucher System

A control mechanism in accounting wherein vouchers are prepared as evidence of authorization before transactions are recorded.

Purchase Order

A form used in business to place an order for the buying of goods from a seller.

Receiving Report

A document prepared by the receiving department to evidence the receipt of material or supplies that had been ordered.

Voucher

A document that authorizes a payment and records details about the transaction but does not represent cash itself.