Question

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.)

Answer 1

Answer:

operating income will decrease by 650

Explanation:

We need to build the differential analysis comparing the raw process and the additional processing:

$\left[\begin{array}{cccc}&Raw&Further&Differential\\ Variable&-2700&-3960&-1260\\ Fixed Cost&-5000&-5290&-290\\ Total Cost&-7700&-9250&-1550\\ Proceeds&13050&13950&900\\ Result&5350&4700&-650\\\end{array}\right]$

While the revenue increase by 900 dollar the cost increase by 1550 which in the end generated a decrease of 650 in the operating income