Nordic Avionics makes aircraft instrumentation.Its basic navigation radio requires $80 in variable costs and requires $2,000 per month in fixed costs.Nordic sells 30 radios per month.If the company upgrades the radio further to enhance its functionality,it will require an additional $25 per unit of variable costs,plus an increase in fixed costs of $800 per month.The current price of the radio is $260.The marketing manager is sure that they can charge a higher price for the improved version.At what price level would the new,improved radio begin to improve operational earnings? (Round to nearest whole dollar.)

Question

Quizplus · Accepted Answer

To improve operational earnings, the revenue from selling the improved radio must exceed the total costs. The new variable cost per unit is $80 + $25 = $105. The new fixed cost is $2,000 + $800 = $2,800. The break-even price per unit is calculated as: (Total Fixed Costs + Total Variable Costs) / Quantity = ($2,800 + 30*$105) / 30 = $312. Therefore, the price must be higher than $312 to improve earnings.

Nordic Avionics Makes Aircraft Instrumentation