Supersonic Tire Company makes a special kind of racing tire. Variable costs are $210 per unit, and fixed costs are $42,000 per month. Supersonic sells 400 units per month at a sales price of $320. If the quality of the tire is upgraded, the company believes it can increase the price to $350. If so, the variable cost will increase to $220 per unit, and the fixed costs will rise by 20%. If Supersonic decides to upgrade, how will operating income be affected? A. Operating income will increase by $20. B. Operating income will decrease by $400. C. Operating income will decrease by $12,000. D. Operating income will increase by $12,000.
Supersonic Tire Company makes a special kind of racing tire. Variable costs are $210 per unit, and fixed costs are $42,000 per month. Supersonic sells 400 units per month at a sales price of $320. If the quality of the tire is upgraded, the company believes it can increase the price to $350. If so, the variable cost will increase to $220 per unit, and the fixed costs will rise by 20%. If Supersonic decides to upgrade, how will operating income be affected? A. Operating income will increase by $20. B. Operating income will decrease by $400. C. Operating income will decrease by $12,000. D. Operating income will increase by $12,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Supersonic Tire Company makes a special kind of racing tire. Variable costs are $210 per unit, and fixed costs are $42,000 per month. Supersonic sells 400 units per month at a sales price of $320. If the quality of the tire is upgraded, the company believes it can increase the price to $350. If so, the variable cost will increase to $220 per unit, and the fixed costs will rise by 20%. If Supersonic decides to upgrade, how will operating income be affected?
Operating income will increase by
$20.
Operating income will decrease by
$400.
Operating income will decrease by
$12,000.
Operating income will increase by
$12,000.
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