Frazer Corp Sells Several Products If the Company Decides to Lower Its Selling Price by Is

question 62

Multiple Choice

Frazer Corp sells several products.Information of average revenue and costs is as follows: $\begin{array}{lr}\text { Selling price per unit } & \$ 28.50 \\\text { Variable costs per unit: } & \\\text { Direct material } & \$ 5.50 \\\text { Direct manufacturing labor } & \$ 1.15 \\\text { Manufacturing overhead } & \$ 0.85 \\\text { Selling costs } & \$ 2.50 \\\text { Annual fixed costs } & \$ 125,000\end{array}$
If the company decides to lower its selling price by 12.25%,the operating income is reduced by ________.

• A) $52,500
• B) $50,500
• C) $55,500
• D) $29,500

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Definitions:

Variable Manufacturing Costs

Variable manufacturing costs are expenses that change in proportion with the level of production output, such as raw materials and labor.

Differential Effect

It is the financial impact of a business decision that differentiates between alternative choices, highlighting the relative costs or benefits.

Book Value

The net value of a company's assets minus its liabilities, as recorded on the balance sheet, often used to calculate the value of a company if it were to be liquidated.

Opportunity Cost

The price paid when one opts not to pursue the next most favorable choice during decision-making.