Question

1. “Uncertainty” may be defined as:

1. The possibility that an actual amount will be the same as an expected amount
2. The possibility that a budgeted amount will be higher than the estimated amount
3. The possibility that a budgeted amount will be lower than the estimated amount
4. The possibility that an actual amount will be either higher or lower than the expected amount

1. Martha Manufacturing produces a single product that sells for $80. Variable cost per unit equal $32. The company expects total fixed costs to be $72,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.
   Suppose that management believes that a 10% reduction in the selling price will result in a 10% increase in sales. If this proposed reduction in selling price is implemented:

1. Operating income will decrease by $16,000
2. Operating income will increase by $16,000
3. Operating income will increase by $8,000
4. Operating income will decrease by $8,000

Answer 1

1	Uncertainty means that the actual amount is either higher or lower than the expected amount.
	Due to this factor provision is made.
	So Option D is answer
2	Any change in selling price or selling volume shall have a direct and proportanioate effect on the Operating income
	New selling price per unit =$80*(1-0.10) =$72
	Decrease in Total Sales =2,000 units*($80-$72) =$16,000
	So if there is a decrease of $16,000 in sales then the Operating income will also decrease by $16,000
	So Option A is answer