Musgrave Corporation Has Fixed Operating Costs of R46,000 and Variable

question 86

Multiple Choice

Musgrave Corporation has fixed operating costs of R46,000 and variable costs that are 30% of the current sales price of R2.15.At a price of R2.15, Musgrave sells 40,000 units.Musgrave can increase sales by 10,000 units by cutting its unit price from R2.15 to R1.95, but variable cost per unit won't change.Should it cut its price?

• A) No, EBIT decreases by R6,000.
• B) No, EBIT decreases by R250.
• C) Yes, EBIT increases by R11,500.
• D) Yes, EBIT increases by R8,050.
• E) Yes, EBIT increases by R5,050.

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