McPherson Company Is Facing a $6 Increase in the Variable

question 117

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: $$\begin{array} { | l | r | r | } \hline & \text { Current Year } & \text { Proposal } \\\hline \text { Unit sales } & 27,000 & 18,000 \\\hline \text { Sales price per unit } & \$ 48 & \$ 58 \\\hline \text { Variable cost per unit } & \$ 30 & \$ 36 \\\hline \text { Fixed cost } & \$ 76,000 & \$ 96,000 \\\hline\end{array}$$ 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:

Message

is a piece of information or communication conveyed from one person to another, either verbally, written, or through another medium.

Source

The person or group communicating a message.

Central Route

A concept in the Elaboration Likelihood Model referring to the path of persuasion that involves careful and thoughtful consideration of the arguments presented.

Persuasion

The process of influencing someone's beliefs, attitudes, or behaviors through communication.