Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
$$\begin{array} { l l }
\text { Price } & \$ 720 \text { per unit } \
\text { Variable cost } & \$ 470 \text { per unit } \
\text { Fixed costs } & \$ 8,000 \text { per month }
\end{array}$$
In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased by $50 per unit.
- If volume and other factors remain constant, how will this affect the company's operating income?

Question

Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows:
$$\begin{array} { l l } 
\text { Price } & \$ 720 \text { per unit } \
\text { Variable cost } & \$ 470 \text { per unit } \
\text { Fixed costs } & \$ 8,000 \text { per month }
\end{array}$$
In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased by $50 per unit.
- If volume and other factors remain constant, how will this affect the company's operating income?

Quizplus · Accepted Answer

The increase in variable cost is $50 per unit. For 40 units, this results in an additional cost of $2,000 (40 units * $50), reducing the operating income by $2,000.

Arquebus Company Is Owned and Operated by a Craftsman Who