A Small Business Produces a Single Product and Reports the Following

question 14

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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If the company reduces its price to $7.50, it believes that the volume will go up to 11,000 units.
How would this change affect operating income?

• A) It will go up by $7,500.
• B) It will go up by $8,000.
• C) It will go down by $2,500.
• D) It will go down by $4,500.

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