Commercial Carpets manufactures custom mats. The details on its standard run of a 1 m x 2 m mat is as follows:

Quantity	Unit Selling Price	Unit Variable Cost	Fixed Costs
320	$56	$31	$1,900

The production manager has indicated that unit variable costs will be increasing by 10%. In an effort to protect profits, the sales manager suggested increasing the selling price by 10% as well. However, an analyst thinks a 10% increase in price will result in a 5% decrease in sales volume. If all these things occur, how much will operating income change?

Question 10Answer

a.

decrease of $446

b.

increase of $360

c.

decrease of $6,460

d.

increase of $806