Two Firms,A and B,both Produce Widgets

question 34

Multiple Choice

Two firms,A and B,both produce widgets.The price of widgets is $1 each.Firm A has total fixed costs of $500,000 and variable costs of 50 cents per widget.Firm B has total fixed costs of $240,000 and variable costs of 75 cents per widget.The corporate tax rate is 40%.If the economy is strong,each firm will sell 1,200,000 widgets.If the economy enters a recession,each firm will sell 1,100,000 widgets.If the economy enters a recession,the after-tax profit of Firm B will be

• A) $0
• B) $6,000
• C) $36,000
• D) $60,000
• E) none of these

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Definitions:

Fair Value

An estimate of the price at which an asset or liability could be exchanged in a current transaction between willing parties.

AASB 141

An Australian Accounting Standards Board standard that concerns agriculture, detailing the accounting for agricultural activity including the transformation of biological assets (living plants and animals) into agricultural produce.

IAS 41

The International Accounting Standard that deals with the accounting for agriculture, including the recognition and measurement of biological assets.

Biological Assets

Living plants or animals that are held by an entity for the purpose of selling them, producing agricultural produce, or providing services.