Victory tire company makes a special kind of racing tire. variable costs are $ 220 per unit, and fixed costs are $ 20 comma 000 per month. victory sells 500 units per month at a sales price of $ 310. if the quality of the tire is upgraded, the company believes it can increase the sales price to $ 360. if so, the variable cost will increase to $ 230 per unit, and the fixed costs will remain the same. if victory decides to upgrade, how will it affect operating income

If Victory decides to upgrade, the  operating income increase by $20,000

Explanation:

For calculating the affect  of operating income between two unit levels, the computation of operating income is important.

Steps given for calculating the operating income is given below:

Step 1 : First we have to compute contribution to arrive net operating income .

So, contribution = Sales revenue - variable cost.

Step 2 : Now, the computation of operating income is easy.

Because the operating income is an amount which is come from subtracting fixed cost from contribution.

So, Operating income = Contribution margin - Fixed cost

The computation of both levels is given in the attachment sheet.

Thus,  If Victory decides to upgrade, the  operating income increase by $20,000

answer; buyer guide;