Omark Corporation Currently Manufactures a Subassembly for Its Main Product

question 91

Multiple Choice

Omark Corporation currently manufactures a subassembly for its main product.The variable costs per unit are $48, in addition to a $6 charge based on estimated selling expenses.R-Corp has contacted Omark with an offer to sell them 5,000 of the subassemblies for $44.00 each.Omark will eliminate $50,000 of fixed overhead if it accepts the proposal.What is increase or decrease in profit from accepting the offer?

• A)$50,000 increase
• B)$100,000 increase
• C)$170,000 increase
• D)$50,000 decrease
• E)$70,000 increase

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Definitions:

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded by consumers.

Marginal Revenue Curve

A graph showing the change in total revenue for a business that results from selling one additional unit of a product or service.

Perfectly Competitive Industry

A theoretical market structure where there are many buyers and sellers, homogeneous products, no barriers to entry and exit, and perfect information, leading to an efficient allocation of resources.

Market Price

The existing rate at which a service or asset is available for purchase or sale on the open market.