Purple Trees Manufactures Rustic Furniture

question 132

Multiple Choice

Purple Trees manufactures rustic furniture.The cost accounting system estimates manufacturing costs to be $240 per table,consisting of 60% variable costs and 40% fixed costs.The company has surplus capacity available.It is Purple Trees' policy to add a 75% markup to full costs. Purple Trees is invited to bid on a one-time-only special order to supply 100 rustic tables.What is the lowest price Purple Trees should bid on this special order?

• A) $7,200
• B) $12,000
• C) $14,400
• D) $42,000

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Definitions:

American Call Option

A type of options contract that allows the holder to buy a specified amount of an underlying asset at a set price before the contract expires.

Exercise Price

The rate at which an individual holding an option can acquire (if it's a call option) or offload (if it's a put option) the fundamental asset.

Option Expiration

The predetermined date on which an option contract becomes invalid and the right to exercise it no longer exists.

Interest Rate Collar

A financial derivative strategy used to hedge against interest rate fluctuations by setting upper and lower bounds on interest rates.