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//www.mathd.com/Student/PlayerTest.aspx?testld-1821886318icenterwin-yes 0207-678: Creating Value with Operations and Supply Chain Quiz: Supplement A Quiz Submit Quiz This Question: K ateatad 9 o19 o complete)P This Quiz: 9 pts possible Techno Corporation is currently manufacturin this item are $141,000. The current selling price of the item is $11 per unit, and the annual sales volume is 35,000 units of manufacturing a. Techno can substantially improve the item's quality by installing new equipment at additional annual fixed costs of $70,000 Variable costs per unit would increase by $2, but, as more of the better-quality product could be sold, the annual volume would increase to 50,000 units. Should Techno buy the new equipment and maintain the current price of the item? Why or why not? because the profit b. Alternatively. Techno could increase the selling price to $12 per unit However, the annual sales volume would be limited to 40,000 units Should Techno buy the new equipment and raise the price of the item? Why or why not? 1 , because the profit 'I from S to S (Enter your responses as integers)Explanation / Answer
A.
Correct answer:
No, because the profit decreases from $104000 t0 $39000
Working note:
Existing profit = (Price – variable cost)* units – fixed cost
Existing profit = (11-4)*35000-141000 = $104000
With new equipment, profit = (11-6)*50000 – (141000 + 70000) =$39000
So, new equipment should not be purchased.
B
Correct Answer:
No, because the profit decreases from $104000 t0 $29000
Working note:
Profit with new equipment and rise in price = (12-6)*40000 - (141000 + 70000) = $29000
So, new equipment should not be purchased.
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