Answer the following questions using the information below:
Kramer Enterprises reports year-end information from 2015 as follows:
$\begin{array}{lr}
\text { Sales (160,000 units) } & \$ 960,000 \
\text { Cost of goods sold } & 640,000\\text { Gross margin } & 320,000 \
\text { Operating expenses } & 260,000 \
\text { Operating income }&\$60,000
\end{array}$ Kramer is developing the 2016 budget. In 2016 the company would like to increase selling prices by 12.5%, and as a result expects a decrease in sales volume of 9%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
-Should Kramer increase the selling price in 2016?
A) Yes, because operating income increases for 2016.
B) Yes, because sales revenue increases for 2016.
C) No, because sales volume decreases for 2016.
D) No, because gross margin decreases for 2016.

Question

Answer the following questions using the information below:
Kramer Enterprises reports year-end information from 2015 as follows:
 $\begin{array}{lr}
\text { Sales (160,000 units) } & \$ 960,000 \
\text { Cost of goods sold } & 640,000\\text { Gross margin } & 320,000 \
\text { Operating expenses } & 260,000 \
\text { Operating income }&\$60,000
\end{array}$ Kramer is developing the 2016 budget. In 2016 the company would like to increase selling prices by 12.5%, and as a result expects a decrease in sales volume of 9%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
-Should Kramer increase the selling price in 2016?
A) Yes, because operating income increases for 2016.
B) Yes, because sales revenue increases for 2016.
C) No, because sales volume decreases for 2016.
D) No, because gross margin decreases for 2016.

Quizplus · Accepted Answer

Increasing the selling price would result in an increase in operating income for 2016, as stated in choice A. This would lead to greater profitability for the company, which is the main goal of most businesses. The other choices, such as increasing sales revenue or avoiding a decrease in sales volume, are also important considerations, but they are secondary to profitability. Since increasing the selling price would help to improve the company's bottom line, it is the best choice.

Answer the Following Questions Using the Information Below: Kramer Enterprises

Answer the Following Questions Using the Information Below:
Kramer Enterprises