Veron Corporation Is Considering Building a New Plant in Europe

question 150

Multiple Choice

Veron Corporation is considering building a new plant in Europe.They predict sales at the new plant to be 100,000 units at $4.00/unit.Below is a listing of estimated expenses: $$\begin{array} { | l | c | c | } \hline \text { Category } & \text { Total Annual Expenses } & \begin{array} { c } \text { \% of Annual Expense } \\\text { that are Fixed }\end{array} \\\hline \text { Materials } & \$ 20,000 & 10 \% \\\hline \text { Labor } & \$ 30,000 & 20 \% \\\hline \text { Overhead } & \$ 50,000 & 40 \% \\\hline \text { Marketing/Admin } & \$ 10,000 & 60 \% \\\hline\end{array}$$ A European firm was contracted to sell the product and will receive a commission of 13% of the sales price.No U.S.home office expenses will be allocated to the new facility.
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How much does the European contractor expect to make in commissions?

• A)$ 40,000
• B)$ 52,000
• C)$ 80,000
• D)$ 13,000

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Definitions:

Shortages

Occur when the demand for a good or service exceeds its supply in a given market, often leading to price increases.

Allocative Efficiency

Occurs when resources are distributed in a way that maximizes the net benefit to society.

Least Costly Way

Refers to a method or strategy that aims to achieve a particular goal or produce a specific outcome with the minimum possible expense or use of resources.