Victory Tire Company makes a special kind of racing tire. Variable costs are $220 per unit, and fixed costs are $10,000 per month. Victory sells 600 units per month at a sales price of $300. If the quality of the tire is upgraded, the company believes it can increase the sales price to $330. If so, the variable cost will increase to $240 per unit, and the fixed costs will remain the same. If Victory decides to upgrade, how will it affect operating income? A. Operating income will decrease by $12,000. B. Operating income will increase by $6,000. C. Operating income will increase by $12,000. D. Operating income will decrease by $6,000.
Victory Tire Company makes a special kind of racing tire. Variable costs are $220 per unit, and fixed costs are $10,000 per month. Victory sells 600 units per month at a sales price of $300. If the quality of the tire is upgraded, the company believes it can increase the sales price to $330. If so, the variable cost will increase to $240 per unit, and the fixed costs will remain the same. If Victory decides to upgrade, how will it affect operating income? A. Operating income will decrease by $12,000. B. Operating income will increase by $6,000. C. Operating income will increase by $12,000. D. Operating income will decrease by $6,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Victory Tire Company makes a special kind of racing tire. Variable costs are
$220
per unit, and fixed costs are
$10,000
per month. Victory sells
600
units per month at a sales price of
$300.
If the quality of the tire is upgraded, the company believes it can increase the sales price to
$330.
If so, the variable cost will increase to
$240
per unit, and the fixed costs will remain the same. If Victory decides to upgrade, how will it affect operating income?Operating income will decrease by
$12,000.
Operating income will increase by
$6,000.
Operating income will increase by
$12,000.
Operating income will decrease by
$6,000.
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