Mod Clothiers Makes Women's Clothes

question 15

Multiple Choice

Mod Clothiers makes women's clothes. It costs $28 000 to produce 5000 pairs of polka-dot polyester pants. They have been unable to sell the pants at their usual price of $50.00. The company is evaluating two alternatives. They could sell the pants 'as is' for a total $15 000 or they could modify the pants and sell them for a total of $20 000.
At what cost to modify each pair of pants, would Mod Clothiers be indifferent between the two alternatives?

• A) $0.40
• B) $0.50
• C) $0.75
• D) $1.00

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Definitions:

Credit Sales

Revenues earned by selling goods or services that are paid for over time under agreed payment terms, rather than paid in full upfront.

COGS

Acronym for Cost of Goods Sold, which refers to the direct costs attributable to the production of the goods sold by a company.

Inventory Turnover Rate

A ratio showing how many times a company's inventory is sold and replaced over a period, indicating the efficiency of inventory management.

Cost of Goods Sold

The direct expenses related to the creation of products sold by a business, including costs for materials and labor.