McPherson Company Is Facing a $2 Increase in the Variable

question 105

Multiple Choice

McPherson Company is facing a $2 increase in the variable costs of producing one of its products for the upcoming year.As a result,the sales manager has made a proposal to increase the sales price of the product while increasing the advertising budget at the same time.The sales price increase will lower sales volume,but the other changes may help the company maintain its profit margin.McPherson has provided the following information regarding the current year results and the proposal made by the sales manager: $$\begin{array} { | l | r | r | } \hline & \text { Current Year } & \text { Proposal } \\\hline \text { Unit sales } & 28,000 & 20,000 \\\hline \text { Sales price per unit } & \$ 48 & \$ 56 \\\hline \text { Variable cost per unit } & \$ 34 & \$ 36 \\\hline \text { Fixed cost } & \$ 76,000 & \$ 98,000 \\\hline\end{array}$$ Relative to the current year,the sales manager's proposal will ________.

• A)decrease operating income by $8,000
• B)increase contribution margin by $14,000
• C)decrease the unit breakeven point
• D)decrease operating income by $14,000

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Definitions:

Clock Speed

The speed at which a processor executes instructions, typically measured in gigahertz (GHz).

Physical Memory

refers to the actual RAM (Random Access Memory) installed in a computer that is used to store data temporarily while the computer is running.

RAM

Random Access Memory, a type of computer memory that is used to store working data and machine code currently being used.

Volatile Storage

Memory that requires power to maintain the stored information; it loses its contents when the system is turned off.