Quentin Produces Highly Specialized Widgets at His Factory

question 23

Multiple Choice

Quentin produces highly specialized widgets at his factory. He sells them for $150 each and has a gross profit of $100 on each one. His monthly costs are: $5,000 for rent, $1,000 for utilities, $13,000 for salaries and benefits, $1,000 for insurance, $3,000 for interest on his debt. How many widgets does he have to sell to cover his fixed costs?

• A) 230
• B) 2,300
• C) 23,000
• D) 3,500

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Definitions:

Capital Intensity Ratio

A metric that measures the amount of assets required to generate one dollar of revenue; the higher the ratio, the more capital-intensive the business.

Dividend Payout Ratio

The fraction of net earnings a firm pays to its shareholders as dividends, expressed as a percentage of the company’s total net income.

Cash Dividends

Payments made by a corporation to its shareholders, representing a portion of the corporate profits.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from total revenue; it is often referred to as the bottom line.