Consider the Following Three Stocks Assume at These Prices the Value-Weighted Index Constructed with the }

question 30

Multiple Choice

Consider the following three stocks: $$\begin{array} { l c c } \text { Stock } & \text { Price } & \text { Number of shares outstanding } \\\hline \text { Stock A } & \$ 40 & 200 \\\text { Stock B } & \$ 70 & 500 \\\text { Stock C } & \$ 10 & 600\end{array}$$
Assume at these prices the value-weighted index constructed with the three stocks is 490.What would the index be if stock B is split 2 for 1 and stock C 4 for 1?

• A) 265
• B) 430
• C) 355
• D) 490
• E) 1000

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Definitions:

Direct Materials

Raw materials that can be directly traced to the manufacturing of a product and are a significant portion of the production cost.

Variable Costing

An accounting method that includes only variable production costs in the cost of goods sold and treats fixed costs as period costs.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue contributes to covering fixed costs and generating profit.

Manufacturing Margin

The difference between the cost of goods sold by a manufacturing company and its total sales, reflecting the gross margin specific to manufacturing operations.