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
290	$59	$34	$2,000

A prospective customer has indicated it would purchase 20% more mats than the standard order if the unit price could be reduced by $2. Assuming no changes to the cost structure, should the sales manager accept this order?

a.

No. Total costs would increase by $2,726

b.

Yes. Total revenue would increase by 20%

c.

Yes. Operating income would increase by 20%

d.

Yes. The contribution margin will increase by $754

The production manager believes a $700 fixed cost investment would reduce variable costs by $2/unit. Assuming no change to sales volume or selling price, should the investment be made?

a.

Yes. The contribution margin will increase by $620 andVariable costs will decrease by $620

b.

Yes. Variable costs will decrease by $620

c.

Yes. The contribution margin will increase by $620

d.

No. Operating income will decrease by $80

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?

a.

decrease of $432

b.

increase of $293

c.

decrease of $5,003

d.

increase of $725