connect apter 07 Pre-built Assignment Question 5 for T value: 100 points Problem
ID: 351100 • Letter: C
Question
connect apter 07 Pre-built Assignment Question 5 for T value: 100 points Problem 7-14 AudioCables, Inc., is currently manufacturing an adapter that has a variable cost of $0.50 per unit and a selling price of $1.30 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 piece of equipment at an additional fixed cost of $6,000. Variable costs would increase to $0.75, but sales volume should jump to 40,000 units due to a higher-quality product a. What is the current profit and proposed profit of the sales of AudioCables? (Negative amounts should be indicated by a minus sign.) Current profit Proposed profit b. Should AudioCables buy the new equipment? O Yes No References eBook& Resources O Type here to searchExplanation / Answer
a) For the current process :
Current profit = Q(SP - VC) - FC
= 30000(1.30-0.50)-14000
= (30000 x 0.8)-14000
= 24000-14000
= $10000
With the addition of new equipment :
Proposed profit = Q(SP - VC) - FC
= 40000(1.30-0.75)-20000
= (40000 x 0.55)-20000
= 22000-20000
= $2000
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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