Answer the following questions using the information below:
Kramer Enterprises reports year-end information from 2010 as follows:
Kramer is developing the 2011 budget. In 2011 the company would like to increase selling prices by 8%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that COGS is a variable cost and that operating expenses are a fixed cost.
-Should Kramer increase the selling price in 2011?

Question

Answer the following questions using the information below:
Kramer Enterprises reports year-end information from 2010 as follows:
    Kramer is developing the 2011 budget. In 2011 the company would like to increase selling prices by 8%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that COGS is a variable cost and that operating expenses are a fixed cost.
-Should Kramer increase the selling price in 2011?

Quizplus · Accepted Answer

By increasing the selling price in 2011, gross margin will have increased due to the increase in revenue per unit sold. Despite the expected decrease in sales volume, the company's operating income will still increase as the fixed operating expenses have not changed. Therefore, increasing the selling price will lead to a higher operating income for 2011.

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