Question

Starforce Avionics makes aircraft instrumentation. Its basic navigation radio requires

$ 80$80

in variable costs and

$ 5 comma 000$5,000

per month in fixed costs. Further processing the​ radio, to enhance its​ functionality, will require an additional

$ 28$28

per unit of variable costs but no change to the fixed costs. The marketing manager believes that the company would be able to increase the sales price from

$ 290$290

to

$ 310$310.

If Starforce decides to further process the​ product, operating income would​ ________.

A.decrease by

$ 8$8

per unit

B.

remain the same

C.increase by

$ 108$108

per unit

D.increase by

$ 28$28

per unit

Answer 1

Option (A) is correct
Operating income before further processing :
Sales	$    290
Less : Variable costs	$     -80
Operating income (A)	$    210
Operating income after further processing :
Sales	$    310
Less : Variable costs	$   -108
Operating income (B)	$    202
Operating income would decrease by (A-B)	$        8	Per unit
Note : Fixed costs are irrelevant for decision making