Parker Industries is a small company with a big name! Parker Industries is actually a one-person company that imports strands of LED lights from China and sells them through its website. Parker's only overhead is a storage unit for inventory that costs $125 a month and a $25 monthly fee for website hosting. Currently, Parker imports the lights for $.99 each (including inbound shipping) and sells them for $4.49. Parker also pays shipping expenses of $.50 per light strand. If Parker found a vendor that would provide the same product for $.89 each including shipping, what would happen?
A) Variable cost would decrease
B) Fixed cost would decrease
C) Contribution margin would decrease
D) Breakeven volume would increase

Question

Quizplus · Accepted Answer

By reducing the cost of goods sold (COGS) from $.99 to $.89 per unit, Parker Industries would decrease its variable costs, as variable costs include the costs that vary with production volume, such as the cost of purchasing inventory.

Parker Industries Is a Small Company with a Big Name!