Frazer corp sells several products. information of average revenue and costs is as follows: selling price per unit $ 30.00 variable costs per unit: direct material $ 7.00 direct manufacturing labor $ 1.45 manufacturing overhead $ 0.95 selling costs $ 2.50 annual fixed costs $ 140 comma 000 if the company decides to lower its selling price by 12.25%, but continues to sell 16 comma 000 units, the operating income is reduced by a. $ 58 comma 880 b. $ 9 comma 600 c. $ 16 comma 000 d. $ 140 comma 000

$58,800

Explanation:

Total variable costs:

=  Direct material + Direct manufacturing labor + Manufacturing overhead + Selling costs

= $ 7.00 + $1.45 + 0.95 + 2.50

= $11.9

Currently:

Net operating income = Sales - Variable cost - Fixed cost

                                = ($30 × 16,000) - ($11.9 × 16,000) - $140,000

                                = $480,000 - $190,400 - $140,000

                                = $149,600

Now:

Net operating income = Sales - Variable cost - Fixed cost

                                    = [$30(1-0.1225)] × 16,000 - ($11.9 × 16,000) - $140,000

                                    = $421,200 - $190,400 - $140,000

                                    = $90,800

Hence,

Decrease in net operating income = ($149,600 - $90,800)

                                                           = $58,800

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