Vineyard Industries has three product lines, A, B, and C.The following information is available: $\begin{array}{lrrr}&A&B&C\
\text { Sales } & \$ 60,000 & \$ 90,000 & \$ 24,000 \
\text { Variable costs } & \underline{36,000} & \underline{48,000} & \underline{20,000} \
\text { Contribution margin } & \$ 24,000 & \$ 42,000 & \$ 4,000 \
\text { Fixed costs: } & & &\
\text { Avoidable } & 9,000 & 18,000 & 3,000 \
\text { Unavoidable } & \underline{6,000} & 9,000 & 2,400 \
\text { Operating income } & \$ 9,000 & \$ 15,000 & \$ 1,400)
\end{array}$ Assuming Vineyard Industries can increase the selling price of product C to $30,000, all other information remaining constant, operating income will _____.
A)increase $3,600
B)decrease $3,600
C)decrease $6,000
D)increase $6,000

Question

Quizplus · Accepted Answer

Increasing the selling price of product C to $30,000 (an increase of $6,000 from the original $24,000) while keeping all other factors constant (including variable and fixed costs) directly increases the contribution margin and operating income by the same amount, $6,000, because the additional revenue flows straight through to the bottom line when costs are unchanged.

Vineyard Industries Has Three Product Lines, A, B, and C