Tony Manufacturing Produces a Single Product That Sells for $80

question 188

Multiple Choice

Tony Manufacturing produces a single product that sells for $80. Variable costs per unit equal $50. The company expects total fixed costs to be $82,000 for the next month at the projected sales level of 2,800 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 14% reduction in the selling price will result in a 14% increase in sales. If this proposed reduction in selling price is implemented ________.

• A) operating income will decrease by $23,990
• B) operating income will increase by $7,370
• C) operating income will decrease by $31,360
• D) operating income will increase by $23,990

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Definitions:

Capital Investment Proposals

Suggestions or plans for spending on long-term assets intended to improve a company's profitability in the future.

Cash Payback Period

The duration required for an investment to generate cash flows sufficient to recoup the initial outlay.

Operating Income

Earnings before interest and taxes (EBIT), a measure of a company's profitability from its core operations.

Annual Net Cash Inflows

The amount of cash that an investment or project generates after accounting for all outflows and inflows over a year.