Musgrave Corporation Has Fixed Operating Costs of $46,000 and Variable

question 62

Multiple Choice

Musgrave Corporation has fixed operating costs of $46,000 and variable costs that are 30% of the current sales price of $2.15.At a price of $2.15,Musgrave sells 40,000 units.Musgrave can increase sales by 10,000 units by cutting its unit price from $2.15 to $1.95,but variable cost per unit won't change.Should it cut its price?

• A) No,EBIT decreases by $6,000.
• B) No,EBIT decreases by $250.
• C) Yes,EBIT increases by $11,500.
• D) Yes,EBIT increases by $8,050.
• E) Yes,EBIT increases by $5,050.

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