Table 8-7 Table 8-7 Shows Cost Data for Lotus Lanterns, a Producer

question 234

Multiple Choice

Table 8-7
$\begin{array}{|c|c|c|c|c|}\hline \begin{array}{c}\text { Quantity of } \\\text { Lanterns }\end{array} & \begin{array}{c}\text { Fixed Cost } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Variable Cost } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Total Cost } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Average Total } \\\text { Cost (dollars) }\end{array} \\\hline 75 & 200 & 170 & 370 & 4.93 \\\hline 80 & 200 & 230 & 430 & 5.36 \\\hline 90 & 200 & & & 7.67 \\\hline 100 & 200 & 810 & & 11.8 \\\hline 115 & 200 & & & 12.5 \\\hline 117 & 200 & 1264 & 1464 & \\\hline 120 & 200 & 1480 & & \\\hline\end{array}$ Table 8-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
-Refer to Table 8-7.What is the average variable cost per unit of production when the firm produces 90 lanterns?

• A) $490
• B) $33.67
• C) $7.67
• D) $5.44

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Definitions:

Working Capital

The difference between a company's current assets and current liabilities, indicating short-term financial health and operational efficiency.

Current Ratio

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

Times Interest Earned

A ratio that assesses the risk that bondholders will not receive their interest payments or that interest payments will not be made if earnings decrease. The ratio is computed as income before income tax expense plus interest expense divided by interest expense.

Interest Expense

The cost incurred by an entity for borrowed funds, often reflected as a line item on the income statement.