A Small Business Produces a Single Product and Reports the Following

question 171

Multiple Choice

A small business produces a single product and reports the following data: $\begin{array}{lc}\text { Price } & \$ 8.00 \text { per unit } \\\text { Variable cost } & \$ 5.00 \text { per unit } \\\text { Fixed cost } & \$ 21,000 \text { per month } \\\text { Volume } & 10,000 \text { per month }\end{array}$ 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 $2,500.
• B) It will go up by $9,000.
• C) It will go down by $2,500.
• D) It will go down by $9,000.