(Appendix 5A)Prehn Corporation Manufactures and Sells One Product

question 25

Multiple Choice

(Appendix 5A) Prehn Corporation manufactures and sells one product.The following information pertains to the company's first year of operations: The company does not have any variable manufacturing overhead costs or variable selling and administrative costs.During its first year of operations, the company produced 36, 000 units and sold 30, 000 units.The company's only product is sold for $251 per unit. The company is considering using either super-variable costing or a variable costing system that assigns $28 of direct labor cost to each unit that is produced.Which of the following statements is true regarding the net operating income in the first year?

• A)Super-variable costing net operating income exceeds variable costing net operating income by $168, 000.
• B)Super-variable costing net operating income exceeds variable costing net operating income by $420, 000.
• C)Variable costing net operating income exceeds super-variable costing net operating income by $420, 000.
• D)Variable costing net operating income exceeds super-variable costing net operating income by $168, 000.

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Definitions:

Competitive Market

A market structure characterized by a large number of buyers and sellers, free entry and exit, and products that are similar across suppliers, ensuring no single entity can control prices.

Entry Barriers

Obstacles that make it difficult for new competitors to enter an industry or market.

Regulatory Standards

Specifications and guidelines established by authorities designed to ensure products, services, and actions meet required safety, quality, and performance criteria.

Competitive Price-searcher Market

A market structure where firms set their own prices because products are differentiated, giving them some degree of pricing power.