Nordic Avionics makes aircraft instrumentation.Its basic navigation radio requires $80 in variable costs and $4,000 per month in fixed costs.Further processing the radio,to enhance its functionality,will require an additional $27 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 $280 to $300.If Nordic decides to further process the product,operating income would ________.

Question

Quizplus · Accepted Answer

The additional processing adds $27 in variable costs per unit, but the sales price only increases by $20 ($300 - $280), resulting in a net decrease of $7 ($27 - $20) in operating income per unit.

Nordic Avionics Makes Aircraft Instrumentation