McPherson Company Is Facing a $6 Increase in the Variable

question 51

Multiple Choice

McPherson Company is facing a $6 increase in the variable cost of producing one of its products for the upcoming year. Because of this situation, the sales manager has made a proposal to increase the selling price of the product while increasing the advertising budget at the same time. The price increase will lower sales volume, but the other changes may help the company maintain its profit margins. McPherson has provided the following information regarding the current year results and the proposal made by the sales manager: Relative to the current year, the sales manager's proposal will:

• A)decrease operating income by $90,000.
• B)increase contribution margin by $90,000.
• C)decrease the unit breakeven point.
• D)decrease operating income by $110,000.

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Definitions:

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, a fundamental concept in economics that captures the essence of trade-offs.

Economic Growth

The growth in the real market value of goods and services that an economy generates over a period.

Technology

The application of scientific knowledge for practical purposes, especially in industry - machinery, equipment, and software developed from such scientific knowledge.

Production Possibility Frontier

An illustration indicating the top production capabilities for a pair of items, given certain inputs like resources.