Advanced Enterprises Reports Year-End Information from 2018 as Follows

question 157

Multiple Choice

Advanced Enterprises reports year-end information from 2018 as follows:

Advanced is developing the 2019 budget. In 2019 the company would like to increase selling prices by 14.5%, and as a result expects a decrease in sales volume of 9%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
Should Advanced increase the selling price in 2019?

• A) Yes, because operating income increases for 2019.
• B) Yes, because sales revenue increases for 2019.
• C) No, because sales volume decreases for 2019.
• D) No, because gross margin decreases for 2019.

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Definitions:

Accrued Expense

Expenses that have been incurred but not yet paid for, typically recorded through adjusting journal entries.

Stockholders' Equity

The remaining value of a company's assets after all debts are paid off, which reflects the shareholders' stake in the corporation.

Assets

Resources owned or controlled by a company that are expected to produce future economic benefits.

Net Income

The remaining profit of a company after expenses and taxes are taken out of its revenue.