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

question 133

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.

Capital One's management believes that a 10% reduction in the selling price will increase sales volume by 10%. If this plan is implemented, then operating profit should:

• A) Increase by approximately $8,000 per month.
• B) Remain approximately the same.
• C) Decrease by approximately $8,000 per month.
• D) Decrease by approximately $16,000 per month.
• E) Increase by approximately $16,000 per month.

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Definitions:

Gingivitis

A common and mild form of gum disease (periodontal disease) that causes irritation, redness, and swelling (inflammation) of the gingiva, the part of the gum around the base of the teeth.

Frenulum

Fold extending from the floor of the mouth to the midline of the undersurface of the tongue.

Sublingual Glands

Salivary glands located beneath the tongue, responsible for secreting saliva that aids in digestion and oral hygiene.

Intrinsic Factor

Factor secreted by the parietal cells of gastric glands and required for adequate absorption of vitamin B12.