Nordin Avionics makes aircraft instrumentation. Their basic navigation radio requires $80 in variable costs and requires $2,000 per month in fixed costs. If they process the radio further to enhance its functionality, it will require an additional $25 per unit of variable costs, but no change to the fixed costs. The marketing manager believes they would be able to boost their price of the radio from $260 to $280. In making this decision, the amount of fixed costs per month is a relevant piece of information.

Question

Quizplus · Accepted Answer

Fixed costs remain constant regardless of the level of production or sales volume, so they are not relevant when deciding on variable production changes like enhancing a product's functionality.

Nordin Avionics Makes Aircraft Instrumentation