Tony Manufacturing Produces a Single Product That Sells for $80

question 109

Multiple Choice

Tony Manufacturing produces a single product that sells for $80.Variable costs per unit equal $30.The company expects total fixed costs to be $78,000 for the next month at the projected sales level of 2,500 units.In an attempt to improve performance,management is considering a number of alternative actions.Each situation is to be evaluated separately.Suppose that management believes that a 10% reduction in the selling price will result in a 10% increase in sales.If this proposed reduction in selling price is implemented ________.

• A) operating income will decrease by $9,500
• B) operating income will increase by $10,000
• C) operating income will decrease by $6,000
• D) operating income will increase by $11,300

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Definitions:

Direct Labor

The labor costs directly attributed to the production of goods or services; it includes wages paid to workers physically making a product.

Constrained Resource

A limited resource in a production process that can restrict the company's ability to produce goods, impact scheduling, and ultimately affect throughput.

Current Profitability

A measure of how much profit a company is generating at the current time, often used to assess financial health.

Constrained Resource

A factor or resource in production that limits the output or performance of a process.