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Alvarez Company is facing an $8 increase in the variable costs of producing one of its products for the upcoming year. As a result, the
Alvarez Company is facing an $8 increase in the variable costs of producing one of its products for the upcoming year. As a result, the sales manager has made a proposal to increase the sales price of the product while increasing the advertising budget at the same time. The sales price increase will lower sales volume, but the other changes may help the company maintain its profit margin. Alvarez has provided the following information regarding the current year results and the proposal made by the sales manager: Current Proposa Year Unit sales 27,000 18,000 Sales price per unit $48 $54 Variable cost per unit $32 $40 Fixed cost $80,000$ 96,000 Relative to the current year, the sales manager's proposal will Current Proposa Year Unit sales 27,000 18,000 Sales price per unit $48 $54 Nariable cost per unit $32. $40 Fixed cost $80,000 $96,000 Relative to the current year, the sales manager's proposal will A) increase contribution margin by $196,000 B) decrease the unit breakeven point C) decrease operating income by $196,000 D) decrease operating income by $324,000
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