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Monica just got notice from her vendor that the cost of good sold will increase by $1.00 per unit next month. She also knows that
Monica just got notice from her vendor that the cost of good sold will increase by $1.00 per unit next month. She also knows that postage will increase by $0.25 per unit, and her insurance premium will increase by $600 per month when she renews the policy next month. Monica is considering three options for responding to the cost increases. Keep her sales price at $18 and absorb the cost increases. This action will have no effect on sales volume. Pass along the cost increase to her customers by increasing her sales price by $1.25. This price increase would result in a 2% drop in sales volume. Raise her sales price by $2 to capture the cost increase and provide additional revenue against the decrease in sales volume. This price increase would result in a 15% drop in sales volume. Calculate the expected operating income under each of the three scenarios. ROUND YOUR ANSWERS TO WHOLE DOLLARS (NO DECIMAL PLACES). DO NOT INCLUDE A $ IN YOUR ANSWERS
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