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:

Adversarial HR Management

A strategy in human resource management that views the relationship between employers and employees as inherently conflictual, emphasizing competition and conflict over cooperation.

Union Substitution

A strategy employed by employers to avoid unionization among their employees, often by providing benefits similar to those a union would negotiate.

Management Policies

Guidelines and principles adopted by an organization's leadership to govern decisions and actions within the company.

Harassment

Unwanted and unwelcomed behavior that creates an intimidating, hostile, or offensive work environment.