audiocables inc https:/ d | a search heducation /connect.html Help Save & AudioC
ID: 349936 • Letter: A
Question
audiocables inc https:/ d | a search heducation /connect.html Help Save & AudioCables, Inc., is currently ma nufacturing an adapter that has a variable cost of $0.60 per unit and a selling price of $1.20 per unit. Fixed costs are $14,000. Current sales volume is 30,000 units. The firm can substantially improve the product quality by adding a new 45,000 units due to a higher-quality product a. What is the current profit and proposed profit of the sales of AudioCables? (Neg ional fixed cost of $6,000. Variable costs would increase to $0.75, but sales volume should jump to ative amounts should be indicated by a minus sign.) Current proft Proposed profit b, Should AudioCables buy the new equipment? O Yes O No There is insufficient information provided to answer this question K Prey 18 of 50 i Next>Explanation / Answer
a) For the current process :
Current profit = Q(SP - VC) - FC
= 30000(1.20-0.60)-14000
= (30000 x 0.6)-14000
= 18000-14000
= $4000
With the addition of new equipment :
Proposed profit = Q(SP - VC) - FC
= 45000(1.20-0.75)-20000
= (45000 x 0.45)-20000
= 20250-20000
= $250
b) No, audio cable should not buy the new equipment as it would yield a lower profit than the current process
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