A Small Business Produces a Single Product and Reports the Following

question 89

Multiple Choice

A small business produces a single product and reports the following data:
$$\begin{array} { | l | r | r | } \hline \text { Price } & \$ 8.00 & \text { per unit } \\\hline \text { Variable cost } & \$ 5.00 & \text { per unit } \\\hline \text { Fixed cost } & \$ 21,000 & \text { per month } \\\hline \text { Volume } & 10,000 & \text { per month } \\\hline\end{array}$$
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The company's variable cost goes up by $0.25 per unit. Fixed costs are lowered from $21,000 to $18,000. Assume other factors remain the same. How would this change affect operating income?

• A) It will go up by $500.
• B) It will go up by $800.
• C) It will go down by $2,500.
• D) It will stay the same.

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