Princeton Avionics makes aircraft instrumentation

Question

Its basic navigation radio requires $90 in variable costs and $3,000 per month in fixed costs. Princeton sells 20 radios per month. If the company further processes the radio, to enhance its functionality, it will require an additional $30 per unit of variable costs, plus an increase in fixed costs of $400 per month. The current sales price of the radio is $270. The CEO wishes to improve operating income by $1,100 per month by selling the enhanced version of the radio. In order to meet this target, the sales price to be charged for the enhanced product is ________.
A) $300 per unit
B) $375 per unit
C) $105 per unit
D) $390 per unit

Answer 1

B .B)
Incremental variable cost $600
Add: Increase in fixed cost 400
Add: Target operating income 1,100
$2,100
Incremental cost per unit $105
Add: Current sales price 270
Sales price to be charged $375