Question

# Route Two Tire Company makes a special kind of racing tire. Variable costs are \$ 200\$200...

Route Two Tire Company makes a special kind of racing tire. Variable costs are

\$ 200\$200

per​ unit, and fixed costs are

\$ 32 comma 000\$32,000

per month. Route Two sells

400400

units per month at a sales price of

\$ 320\$320.

The company believes that it can increase the price if the tire quality is upgraded. If​ so, the variable cost will increase to

\$ 230\$230

per​ unit, and the fixed costs will rise by

5050​%.

The CEO wishes to increase the​ company's operating income by

1515​%.

Which sales price level would give the desired​ results? (Round your answer to the nearest​ cent.)

A.

\$ 1 comma 056.00\$1,056.00

per unit

B.

\$ 280.00\$280.00

per unit

C.

\$ 396.00\$396.00

per unit

D.

\$ 360.00\$360.00

per unit

 Sales (400 units * \$320) \$128,000 Variable cost (400 units * \$200) \$80,000 Fixed cost \$32,000 Operating income \$16,000

Operating income = \$16,000

Operating income increases by 15% = \$16,000 * 1.15

= \$18,400

New Variable cost = (400 units * \$230)

= \$92,000

New Fixed cost = \$32,000 * 1.50

= \$48,000

New sales = Operating income + new variable cost + new fixed costs

= \$18,400 + \$92,000 + \$48,000

= \$158,400

Sales price = (Sales price / units)

= \$158,400 / 400 units

= \$396.00

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