(c) An electronics firm is currently manufacturing an item that has a variable c

Question

(c) An electronics firm is currently manufacturing an item that has a variable cost of $0.50 per unit and a selling price of $1.00 per unit. Fixed costs are$14,000 per month. Current volume is 30,000 units per month. The firm wants to improve the product quality by adding a new piece of equipment at an additional fixed cost of $6,000 a month. Variable cost would increase to $0.60 a unit but volume should jump to 50,000 units a month due to improved productivity. Although the new product is of a higher quality, the firm intends to stay with the selling price of $1.00 per unit (for competitive purposes). Should the firm buy the new equipment

Explanation / Answer

variablecost=vc=0.5 per unit fixed cost=14,000 per month sp=1 per unit volume=v=30,000 units per month additional fixed cost=6,000 per month total new fixed cost=20,000 new variable cost=0.6 per unit new volume=50,000 units per month profit before=selling price - cost price =(1*30,000)-(0.5*30,000)-14,000 =1,000 profit after=(1*50,000)-(0.6*50,000)-20,000 =0 so,the firm should not buy the equipment.

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.