Merrimack Tire Company Makes a Special Kind of Racing Tire

Merrimack Tire Company makes a special kind of racing tire.Variable costs are $220 per unit,and fixed costs are $30,000 per month.Merrimack sells 500 units per month at a sales price of $300.If the quality of the tire is upgraded,the company believes it can increase the price to $325.If so,the variable cost will increase to $230 per unit,and the fixed costs will rise by 40%.If Merrimack decides to upgrade,how will operating income be affected?

A) Operating income will decrease by $12,500.
B) Operating income will decrease by $4,500.
C) Operating income will increase by $12,500.
D) Operating income will increase by $40.