Nordic Avionics makes aircraft instrumentation
Its basic navigation radio requires $70 in variable costs and $3,000 per month in fixed costs. Further processing the radio, to enhance its functionality, will require an additional $26 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 $270 to $290. If Nordic decides to further process the product, operating income would ________.
A) remain the same
B) increase by $26 per unit
C) increase by $96 per unit
D) decrease by $6 per unit
D .D)
Sell as is Process further
Sales revenue $270 $290
Less: Variable cost 70 70
Less: Variable cost for further processing 26
Contribution margin $200 $194
Decline in operating income ($200 - $194 ) $6
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a. Income statement b. Balance sheet c. Statement of cash flows d. Statement of retained earnings
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