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.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11E

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