Data Concerning Pellegren Corporation's Single Product Appear Below: Fixed

question 240

Multiple Choice

Data concerning Pellegren Corporation's single product appear below: Fixed expenses are $531,000 per month. The company is currently selling 4,000 units per month. The marketing manager would like to cut the selling price by $14 and increase the advertising budget by $35,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change?

• A) decrease of $18,000
• B) increase of $38,000
• C) decrease of $38,000
• D) increase of $58,000

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Definitions:

Capital Lease

A lease agreement that is classified as a purchase by the lessee for accounting purposes, because it transfers substantially all the risks and rewards of ownership.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return.

Lease Payments

Periodic payments made by a lessee to a lessor for the use of an asset over a specified lease term.