Answer the Following Questions Using the Information Below:
Violet Sales

Answer the following questions using the information below:
Violet Sales Corp, reports the year-end information from 2016 as follows:
$$\begin{array} { l r } \text { Sales (35,000 units) } & \$ 280,000 \\\text { Cost of goods sold } & 105,000 \\ \text { Gross margin } & 175,000 \\\text { Operating expenses } & 150,000 \\\text { Operating income } & \$ 25,000 \\\hline\end{array}$$ Violet is developing the 2016 budget. In 2016 the company would like to increase selling prices by 3.5%, and as a result expects a decrease in sales volume of 15%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
-Should Violet increase the selling price in 2016?

A) Yes, because sales revenue increases for 2016.
B) Yes, because gross margin increases for 2016.
C) No, because sales volume decreases for 2016.
D) No, because operating income decreases for 2016.

Correct Answer:

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