E-Books Company Is Planning the Introduction of a New Product

question 14

Multiple Choice

E-books Company is planning the introduction of a new product. The following information relating to the product has been assembled:
$\begin{array}{|l|r|}\hline \text { Variable Costs (per unit) : } & \\\hline \text { Materials, Labour, and Overhead } & \$ 15 \\\hline \text { Selling and Administrative } & \$ 3 \\\hline \text { Fixed Costs per Year: } & \$ 375,000 \\\hline \text { Manufacturing Overhead } & \$ 300,000 \\\hline \text { Selling and Administrative } & \$ 750,000 \\\hline \text { Investment Required } & 20 \% \\\hline \text { Required Rate of Return } & 75,000 \\\hline \text { Total Units to Be Produced and Sold Each Year }\\\hline\end{array}$
The company uses the absorption costing approach to pricing.
- The target selling price for one unit of the new product is closest to which of the following?

• A) $22.00.
• B) $26.50.
• C) $29.00.
• D) $32.67.

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Definitions:

Technically Insolvent

A situation where a company cannot meet its short-term financial obligations even though its total assets may exceed its total liabilities.

Negative Net Worth

A financial condition where an individual's or entity's liabilities exceed its assets, indicating negative financial health.

Financial Obligations

Liabilities or commitments that require a business or individual to make payments, including debts, loans, and other financial responsibilities.

Direct Bankruptcy Costs

Expenses directly associated with the process of filing for bankruptcy, including legal fees, accounting expenses, and other administrative costs.