[The Following Information Applies to the Questions Displayed Below

question 75

Multiple Choice

[The following information applies to the questions displayed below.]
Perry's Cycle Company manufactures annually 20,000 units of TushSeat,a bicycle seat used on many of the company's products,and also sold directly to retailers for $38 per unit.At the current level of production,the cost per unit to produce TushSeat consists of:
It has come to the attention of management that a seat of similar quality can be purchased from outside suppliers.
-Assume that seats can be purchased from the outside supplier at $25 each,and that 60% of total fixed costs incurred in producing TushSeat will be eliminated by this strategy.Buying the seats instead of manufacturing them would cause Perry's operating income to:

• A)Decrease by $20,000.
• B)Increase by $36,000.
• C)Increase by $16,000.
• D)Decrease by $24,000.

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Definitions:

Tax

An enforced economic levy or different levy applied to a taxpayer by a governmental agency intended to provide for government spending and multiple public outlays.

Perfectly Inelastic Supply

Perfectly Inelastic Supply describes a situation in which the quantity supplied of a good does not change regardless of price movements.

Tax Increase

The act of raising the rates of taxes imposed by the government, which can affect consumer spending, investment, and overall economic growth.

Sales Tax

Sales Tax is a tax levied on the sale of goods and services, typically collected by the retailer at the point of purchase and then passed on to the government.