Craylon Manufacturing produces a single product that sells for $140. Variable costs per unit equal $35. The company expects total fixed costs to be $60,000 for the next month at the projected sales level of 1,500 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. One alternative is to increase advertising expenses by $11,000. What is the effect on operating income with the increase of advertising expenses?
A) Operating income will decrease by $11,000.
B) Operating income will increase by $11,000.
C) Operating income will decrease by $86,500.
D) Operating income will increase by $86,500.

Question

Quizplus · Accepted Answer

Operating income without advertising expenses = $140 - 35 = $105 × 1,500 = 157,500 - 60,000 = $97,500
Operating income with advertising expenses = 157,500 - (60,000 + 11,000) = $86,500

Craylon Manufacturing Produces a Single Product That Sells for $140