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Capital One Produces a Single Product, Which It Sells for $8.00

question 111

Multiple Choice

Capital One produces a single product, which it sells for $8.00 per unit. Variable costs per unit equal $3.20. The company expects short-term fixed costs to be $7,200 for the coming month, at the projected sales level of 20,000 units. Management is considering several alternative actions designed to improve operating results. In conjunction with this, they have created a profit-planning (that is, a CVP) model, which can be used to evaluate different scenarios.

Suppose that Capital One's management believes that a $1,600 increase in the monthly promotion costs will provide a boost to sales. By how many units must sales increase during the month to justify the contemplated expenditure? Round answer up to the nearest whole number.

Definitions:

Victor Vroom

Victor Vroom is known for his work on expectancy theory, which suggests that individual motivation is influenced by expected outcomes and the value placed on those outcomes.

Expectancy Theory

A motivational theory suggesting that individuals are motivated to perform or behave in a certain way if they believe that their actions will lead to a desired outcome.

Employee Motivation

The array of internal and external factors that stimulate workers to take actions towards achieving personal and organizational goals.

Frederick Herzberg

An American psychologist famous for introducing the two-factor theory of motivation, identifying factors that cause job satisfaction and dissatisfaction.