Veron Corporation Is Considering Building a New Plant in Europe

question 69

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: $$\begin{array} { | l | c | c | } \hline \text { Category } & \begin{array} { c } \text { Total Annural } \\\text { Expenses }\end{array} & \begin{array} { c } \text { \% of Annual Expense that } \\\text { are Fixed }\end{array} \\\hline \text { Materials } & \$ 20,000 & 10 \% \\\hline \text { Labar } & \$ 30,000 & 20 \% \\\hline \text { Overhead } & \$ 50,000 & 40 \% \\\hline \text { Marketing/Admin } & \$ 10,000 & 60 \% \\\hline\end{array}$$ 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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The margin of safety percentage for Veron Corporation is:

• A)12.50%.
• B)93.56%.
• C)112.50%.
• D)87.50%.

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Definitions:

Food And Supplies

These are consumable items bought and used in the operations of businesses, particularly in the restaurant and hospitality industries.

Tenant-Days

A measure used in property management representing the sum total of days each tenant occupies a space over a certain period.

Spending Variance

The difference between the actual amount spent and the budgeted amount for a particular item or category.

Direct Materials

The raw materials and components that are directly incorporated into a finished product and can be easily traced to it.