Frazer Corp sells several products. Information of average revenue and costs is as follows:

If the company decides to lower its selling price by 14.25%, but continues to sell 16,000 units, the operating income is reduced by ________.
A) $64,960
B) $135,000
C) $13,200
D) $16,000

Question

Frazer Corp sells several products. Information of average revenue and costs is as follows:

If the company decides to lower its selling price by 14.25%, but continues to sell 16,000 units, the operating income is reduced by ________.
A) $64,960 
B) $135,000 
C) $13,200 
D) $16,000

Quizplus · Accepted Answer

$28.50 × 14.25% = 4.06. Therefore the new selling price is $24.44 ($28.50 - $4.06).
Contribution = ($24.44 - $6.00 - $1.45 - $0.85 - $2.50) × 16,000 = $218,240
Operating income = $218,240 - $135,000 = $83,240.

Frazer Corp Sells Several Products