Thompson Company Had the Following Results of Operations for the Past

question 14

Multiple Choice

Thompson Company had the following results of operations for the past year:
$$\begin{array} { l r r } \text { Sales } ( 16,000 \text { units at } \$ 10 ) & & \$ 160,000 \\\text { Direct materials and direct labor } & \$ 96,000 & \\\text { Overhead (20\% variable) } & 16,000 \\\text { Selling and administrative expenses (all fixed) } & \underline { 3 2 , 0 0 0 } &\underline { ( 144,000 ) } \\\text { Operating income } && \underline { \underline { \$ 16,000}}\end{array}$$
A foreign company (whose sales will not affect Thompson's market) offers to buy 4,000 units at $7.50 per unit.In addition to variable manufacturing costs,selling these units would increase fixed overhead by $600 and selling and administrative costs by $300.If Thompson accepts the offer,its profits will:

• A) Increase by $30,000
• B) Increase by $ 6,000
• C) Decrease by $ 6,000
• D) Increase by $ 5,200
• E) Increase by $ 4,300

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Definitions:

Scarcity

The fundamental economic problem of having seemingly limitless human wants in a world with limited resources.

Government Intervention

Actions taken by a government to influence or regulate economic activities, often to correct market failures or achieve social goals.

Market Economy

An economic system where supply and demand from consumers determine the production of goods and services rather than government intervention.

Economy's Performance

An evaluation of how well an economy is doing, commonly measured by indicators such as GDP growth, unemployment rates, and inflation.