You have been provided with the following information:
$\begin{array}{llr}
& \text {Per }\
& \text { Unit } & \text { Total }\
\text {Sales } &\$15&\$45,000\
\text { Less variable expenses } &9&27,000\
\text { Contribution margin} &6&18,000\
\text { Less fixed expenses } &&12,000\
\text {Operating profit } &&\$6,000\
\end{array}$

If sales decrease by 500 units, how much will fixed costs have to be reduced by to maintain the current operating profit of $6,000?
A) $9,000.
B) $7,500.
C) $6,000.
D) $3,000.

Question

You have been provided with the following information:
$\begin{array}{llr}
&  \text {Per  }\
 & \text { Unit } &  \text { Total }\
 \text {Sales  } &\$15&\$45,000\
 \text { Less variable expenses } &9&27,000\
 \text {  Contribution margin} &6&18,000\
 \text { Less fixed expenses } &&12,000\
 \text {Operating profit  } &&\$6,000\
\end{array}$

If sales decrease by 500 units, how much will fixed costs have to be reduced by to maintain the current operating profit of $6,000?
A) $9,000.
B) $7,500.
C) $6,000.
D) $3,000.

Quizplus · Accepted Answer

The contribution margin per unit is $6. A decrease of 500 units results in a $3,000 decrease in contribution margin (500 units x $6). To maintain the same operating profit, fixed costs must be reduced by $3,000.

You Have Been Provided with the Following Information If Sales Decrease by 500 Units, How Much Will Fixed