Widget Inc

question 8

Multiple Choice

Widget Inc. manufactures widgets. The company has the capacity to produce 100,000 widgets per year, but it currently produces and sells 75,000 widgets per year. The following information relates to current production: If a special sales order is accepted for 8100 widgets at a price of $39 per unit, and fixed costs increase by $13,000, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

• A)Decrease by $68,000
• B)Increase by $108,500
• C)Increase by $94,000
• D)Increase by $68,000

Understand the significance of present value in analyzing capital investment proposals and distinguish between methods that consider and ignore present value.

Grasp the concept of cash payback period and its relevance in investment decisions.

Recognize the role of management in planning, evaluating, and controlling long-term investments involving fixed assets.

Understand the necessity of prudent considerations in capital investment decisions due to long-term fund commitments.

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Definitions:

Total Fixed Costs

The sum of all costs that remain constant regardless of the level of production or output in a business.

Recession

A period of declining real GDP, accompanied by lower real income and higher unemployment.

Average Fixed Cost

The fixed expenses of a business spread out over the total number of units produced, decreasing as production increases.

Total Revenues

The total income generated by a firm from its sales activity, calculated by multiplying the selling price by the quantity sold.