In Order to Produce a New Product, a Firm Must

question 28

Multiple Choice

In order to produce a new product, a firm must lease equipment at a cost of $10,000 per year. The managers feel that they can sell 5,000 units per year at a price of $7.50. What is the highest variable cost that will allow the firm to at least break even on this project?

• A) $2.50.
• B) $3.50.
• C) $4.50.
• D) $5.50.
• E) $6.50.

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Definitions:

Minimum Required Return

This refers to the smallest expected or necessary rate of return on an investment to make it worthwhile.

Transfer Price

The amount levied on goods or services traded across sections or sister companies within the same organization.

Motor Division

A sector or unit within a company that specializes in the development, production, and marketing of motor vehicles or engine components.

Automotive Division

A specialized business unit within a larger company that focuses on the development, manufacturing, and sales of automotive vehicles and related services.