Craylon Manufacturing Produces a Single Product That Sells for $140

question 35

Multiple Choice

Craylon Manufacturing produces a single product that sells for $140. Variable costs per unit equal $35. The company expects total fixed costs to be $60,000 for the next month at the projected sales level of 1,500 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. One alternative is to increase advertising expenses by $11,000. What is the effect on operating income with the increase of advertising expenses?

• A) Operating income will decrease by $11,000.
• B) Operating income will increase by $11,000.
• C) Operating income will decrease by $86,500.
• D) Operating income will increase by $86,500.

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Definitions:

Total Sales

The aggregate revenue generated from selling goods or services over a specified period.

Concentration Ratio

A measure used in economics to assess the degree of market control held by the largest firms in the industry.

Differentiated Oligopoly

A market structure where a few companies control a large portion of the market share and compete by selling similar but not identical products.

Kinked Demand Curve

A theoretical graph showing a situation in oligopolistic markets where price increases by one firm do not lead to increases by competitors, creating a "kink" in the curve.