Classic Loungers Is in the Process of Preparing a Production

question 131

Multiple Choice

Classic Loungers is in the process of preparing a production cost budget for August.Actual costs in July for 200 chaise lounge chairs were: $$\begin{array} { l r } \text { Materials cost } & 6,000 \\\text { Labor cost } & 8,000 \\\text { Rent } & 2,000 \\\text { Depreciation } & 4,000 \\\text { Other fixed costs } & 5,000 \\\text { Total } & \$ 25,000 \\\hline\end{array}$$ Each chair was sold for $140 in July.Management estimates that sales will increase to 230 chairs during August if the company lowers the selling price to $130 per chair.Materials and labor are the only variable costs.Under what situation should the company lower the price of its chaise lounge chairs?

• A)If total revenue exceeds totals costs under the new pricing
• B)If incremental revenue exceeds the old revenue
• C)If incremental profit is a positive number
• D)If incremental costs decrease

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Definitions:

Invention

A new method, idea, product, or process developed from study and experimentation.

Technological Advance

The development and application of new technologies, leading to more efficient production processes, new products, or improved services.

Capitalist Economy

An economic system where private individuals and businesses own the means of production and operate for profit, guided by market forces.

Economists

Professionals or scholars who study, develop, and apply theories and concepts from economics, and write about economic policy.