Zhou Company is facing a $7 increase in the variable cost of producing one of its products for the upcoming year.Because of this situation,the sales manager has made a proposal to increase the selling price of the product while increasing the advertising budget at the same time.The price increase will lower sales volume,but the other changes may help the company maintain its profit margins.Zhou has provided the following information regarding the current year results and the proposal made by the sales manager:

Relative to the current year,the sales manager's proposal will ________.
A)decrease operating income by $158,000
B)increase contribution margin by $60,000
C)decrease the unit breakeven point
D)decrease operating income by $218,000

Question

Zhou Company is facing a $7 increase in the variable cost of producing one of its products for the upcoming year.Because of this situation,the sales manager has made a proposal to increase the selling price of the product while increasing the advertising budget at the same time.The price increase will lower sales volume,but the other changes may help the company maintain its profit margins.Zhou has provided the following information regarding the current year results and the proposal made by the sales manager:

Relative to the current year,the sales manager's proposal will ________.

Relative to the current year,the sales manager's proposal will ________.
A)decrease operating income by $158,000 
B)increase contribution margin by $60,000 
C)decrease the unit breakeven point 
D)decrease operating income by $218,000

Quizplus · Accepted Answer

D)
Evaluation of current year data:
 11ea8a42_4f9a_7a76_8b44_2d61e6506e2d_TB5024_00 Evaluation of proposal made by the sales manager:
 11ea8a42_4f9a_7a77_8b44_496c43e4c7ca_TB5024_00 Increase or (decrease)in operating income = $462,000 - $244,000 = $218,000

Zhou Company Is Facing a $7 Increase in the Variable