The McPherson Company is facing a $6 increase in the variable cost of producing one of its
Question:
The McPherson Company is facing a $6 increase in the variable cost of producing one of its products for the upcoming year. As a result, the sales manager has made a proposal to increase the sales price of the product while increasing the advertising budget at the same time. The sales price increase will lower sales volume, but the other changes may help the company maintain its profit margin. McPherson has provided the following information regarding the current year results and the proposal made by the sales manager:
………………………………..Current Year……….Proposal
Unit sales……….………………28,000……….……20,000
Sales price per unit……….………$48……….……….$56
Variable cost per unit……….…….$34……….……….$36
Fixed cost……………………...$76,000…………….$98,000
Relative to the current year, the sales manager’s proposal will ________.
A) Decrease operating income by $8,000
B) Increase contribution margin by $14,000
C) Decrease the unit breakeven point
D) Decrease operating income by $14,000
Accounting Principles
ISBN: 978-0470533475
9th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso