Evans Company Has Estimated the Following Amounts for Its Next

question 48

Multiple Choice

Evans Company has estimated the following amounts for its next fiscal year: $$\begin{array} { | l | r | } \hline \text { Total fixed expenses } & \$ 832,500 \\\hline \text { Sale price per unit } & 40 \\\hline \text { Variable expenses per unit } & 25 \\\hline\end{array}$$ If the company spends an additional $30,000 on advertising, sales volume would increase by 2,500 units. What effect will this decision have on the operating income of Evans?

• A) Operating income will decrease by $62,500.
• B) Operating income will increase by $7,500.
• C) Operating income will increase by $70,000
• D) Operating income will increase by $37,500.

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Definitions:

Closing Entries

Journal entries made at the end of an accounting period to transfer temporary account balances to permanent accounts and prepare the company's books for the next period.

Operating Entity

An organization or firm that engages in commercial, industrial, or professional activities.

Owner's Capital Account

An account on a company's balance sheet representing the total investment made by the owner(s), minus any withdrawals.

Financial Statements

Comprehensive reports that provide an overview of a company's financial condition, including balance sheets, income statements, and cash flow statements.