Q5) ABC Inc. wishes to enter a highly competitive market, and studies have determined that products in this industry nearly all sell for $20 per unit. ABC estimates that it can produce and sell 500,000 units annually. ABC uses operating assets valued $20 million and desires a return on these assets of 15%. Calculate ABC's target cost based on the information provided.

Multiple Choice

• $30

• $20

• $12

• $14

Q6)

For decision-making purposes, sunk costs are always irrelevant.

True or False

Q7)

ADL company produces a single component with variable and fixed production costs of $7 and $3. The product currently sells for $12 per unit. The company is currently operating at 50% of its 10,000 unit annual production capacity. A customer recently approached the company with a one-time special order for 7,000 units, offering the company only $10 per unit. Because of the specific nature of this order, the company would have to invest in a special machine (which would cost an additional $10,000) to satisfy this order. Variable production costs would remain unchanged. If the special order was accepted, the machine would be sold immediately after the order was delivered for $2,000. Should the company accept the special order?

Multiple Choice

• Yes, as the company would earn an additional $4,000.

• No, as the company would lose $7,000.

• Yes, as the company would earn an additional $3,000.

• No, as the company would lose $15,000.

Q8)

ADL company produces a single component with variable and fixed production costs of $7 and $3. The product currently sells for $12 per unit. The company is currently operating at 50% of its 10,000 unit annual production capacity. A customer recently approached the company with a one-time special order for 5,000 units, offering the company only $10 per unit. Because of the specific nature of this order, the company would have to invest in a special machine (which would cost an additional $10,000) to satisfy this order. Variable production costs would remain unchanged. If the special order was accepted, the machine would be sold immediately after the order was delivered for $2,000. Should the company accept the special order?

Multiple Choice

• Yes, as the company would earn an additional $7,000.

• No, as the company would lose $7,000.

• Yes, as the company would earn an additional $15,000.

• No, as the company would lose $15,000