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.

• A) 200 units.
• B) 334 units.
• C) 400 units.
• D) 668 units.
• E) None of these answer choices are correct.

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Definitions:

Secondary Circular Reactions

A stage in Piaget's theory of cognitive development where infants (4-8 months) repeat pleasurable actions that are centered on their own body.

Primary Circular Reactions

Repetitive actions focused on the body that infants engage in for pleasure, part of Piaget’s stages of cognitive development.

Schema

A cognitive framework or concept that helps organize and interpret information, based on past experiences and knowledge.

Assimilations

The process of integrating new information into existing cognitive schemas, frameworks, or understandings.