Starforce Avionics makes aircraft instrumentation.Its basic navigation radio requires $80 in variable costs and $5000 per month in fixed costs.Further processing the radio,to enhance its functionality,will require an additional $28 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 $290 to $310.If Starforce decides to further process the product,operating income would ________.

Question

Quizplus · Accepted Answer

The additional processing adds $28 to the variable costs, but the sales price only increases by $20 ($310 - $290), resulting in a net decrease of $8 per unit in operating income.

Starforce Avionics Makes Aircraft Instrumentation