Davis Corporation Manufactures and Sells Portable Radios

question 3

Multiple Choice

Davis Corporation manufactures and sells portable radios. The radio sells for $60 per unit and its variable costs per unit are $20. Fixed costs are $52,000 per month for sales volumes up to 30,000 radios. If more than 30,000 radios are sold, the fixed costs will be $40,000. The flexible budget would reflect what monthly operating income for a sales volume of 37,000 radios?

• A)$40,000
• B)$1,440,000
• C)$2,220,000
• D)$1,480,000

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Definitions:

Capital Budgeting

The process a business undertakes to evaluate potential major projects or investments, such as new machinery, expansion of production or new facilities.

Translation Exposure

The risk that a company's financial statements can be affected by changes in exchange rates when foreign operations are translated into the domestic currency.

Dollar/Peso Exchange Rate

The value of one currency expressed in terms of another currency, specifically how many Mexican pesos one US dollar can buy.

Custom-Designed Refrigerators

Refrigeration units that are tailored to the specific requirements or preferences of a user, often involving unique sizes, features, or designs.