Montgomery Corporation Produces and Sells a Single Product

question 140

Multiple Choice

Montgomery Corporation produces and sells a single product.Data concerning that product appear below: Fixed expenses are $239,000 per month.The company is currently selling 3,000 units per month.The marketing manager would like to cut the selling price by $12 and increase the advertising budget by $12,000 per month.The marketing manager predicts that these two changes would increase monthly sales by 500 units.What should be the overall effect on the company's monthly net operating income of this change?

• A)Increase of $102,000
• B)Decrease of $30,000
• C)Decrease of $6,000
• D)Increase of $30,000

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Definitions:

Direct Costs

Costs that can be directly attributing to the production of specific goods or services, such as raw materials and labor.

Merchandising Company

A type of business that purchases goods in a ready-to-sell condition and earns income by selling these goods to end consumers.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold in a company, including materials and labor.

Product Costs

Costs that are directly associated with the manufacture of goods, including materials, labor, and manufacturing overhead.