Acme Company Has Variable Costs Equal to 30% of Sales

question 14

Multiple Choice

Acme Company has variable costs equal to 30% of sales.The company is considering a proposal that will increase sales by $10,000 and total fixed costs by $7,000.By what amount will net income increase?

• A) $0
• B) $3,000
• C) $7,000
• D) $4,000

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Definitions:

Stock Dividend

Increases the number of shares outstanding, but at a slower rate than splits. Current shareholders receive additional shares on some proportional basis. Thus, a holder of 100 shares would receive 5 additional shares at no cost if a 5% stock dividend were declared.

Shareholder's Wealth

The total value of an individual's or entity's equity in a firm, essentially reflecting the market value of their shares.

Institutional Investors

Entities such as pension funds, insurance companies, and mutual funds that invest large amounts of money in securities, real estate, and other investment assets.

Syndicated Offerings

A financing arrangement where multiple lenders team up to provide a borrower with a large loan, often used in big and complex projects.