You have been provided with the following information:
$$\begin{array} { | l | r | r | }
\hline&\text { Per Unit } & \text { Total }\
\hline \text { Sales } & \$ 15 & \$ 45,000 \
\hline \text { Less variable expenses } & \underline{ 9 }& \underline{27,000} \
\hline \text { Contribution margin } &6 & 18,000\
\hline \text { Less fixed expenses } & & \underline{12,000 } \
\hline \text { Operating profit } & &\$6,000\
\hline
\end{array}$$
If sales decrease by 500 units,how much will fixed costs have to be reduced by to maintain the current operating profit of $6,000?
A) $9,000.
B) $7,500.
C) $6,000.
D) $3,000.

Question

You have been provided with the following information: 
$$\begin{array} { | l | r | r | } 
\hline&\text { Per Unit } & \text { Total }\
\hline \text { Sales } & \$ 15 & \$ 45,000   \
\hline \text { Less variable expenses } & \underline{ 9 }&  \underline{27,000} \
\hline \text { Contribution margin } &6 & 18,000\
\hline \text { Less fixed expenses } & & \underline{12,000 } \
\hline \text { Operating profit } & &\$6,000\
\hline
\end{array}$$
If sales decrease by 500 units,how much will fixed costs have to be reduced by to maintain the current operating profit of $6,000?
A) $9,000.
B) $7,500.
C) $6,000.
D) $3,000.

Quizplus · Accepted Answer

A decrease of 500 units results in a loss of contribution margin of $3,000 (500 units x $6 per unit). To maintain the same operating profit, fixed costs must be reduced by this amount.

You Have Been Provided with the Following Information If Sales Decrease by 500 Units,how Much Will Fixed Costs