Question

Perry Corporation produces and sells a single product. Data for that product arec Sales priceperunt $265 Variable cost per unit 5130 Fored expenses for the month $690,000 Currently seling 11,000 units Upper management is considering using a biodegradable packaging which costs 59 more per unit but it produce was in the long run. Management plans to increase advertising by $13.000 in the first month to advertise this new feature to the packaging. They believe that environmentally friendly people wil witch to their product resulting in an increase in sales of 3.500 units per month What should be the overall effect on the company's monthly operating income in the first month if this change is implemented O A Decrease of 5329.000 OB Increase of $329,000 OC. Increase of $355,000 OD. Decrease of $355,000 Click to select your answer.

Answer 1

Solution:

Current:
Sales revenue	2915000	=11000*265
Less: Variable costs	1430000	=11000*130
Less: Fixed costs	690000
Operating income	$795000	=2915000 - 1430000 - 690000
Revised:
Sales revenue	3842500	=14500*250
Less: Variable costs	2015500	=14500*(130+9)
Less: Fixed costs	703000	=690000 + 13000
Operating income	$1124000	=3842500 - 2015500 - 703000
Change in Operating income	$329000	=1124000-795000
Option B Increase of $329,000 is correct