Malmo Avionics makes aircraft instrumentation.Its basic navigation radio requires $60 in variable costs and $5,000 per month in fixed costs.Further processing the radio,to enhance its functionality,will require an additional $28 per unit of variable costs,plus an increase in fixed costs of $290 per month.The marketing manager believes that they would be able to increase the sales price of the radio from $290 to $310.Malmo sells 45 radios per month.If Malmo decides to further process the radio,monthly operating income would ________.(Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The current contribution margin per unit is $290 - $60 = $230. With further processing, the variable cost per unit becomes $60 + $28 = $88, and the selling price becomes $310, making the new contribution margin per unit $310 - $88 = $222. The decrease in contribution margin per unit is $230 - $222 = $8. The increase in fixed costs is $290. Therefore, the total decrease in monthly operating income is (45 units * $8 decrease in contribution margin) + $290 increase in fixed costs = $360 + $290 = $650 decrease.

Malmo Avionics Makes Aircraft Instrumentation