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Company buy the new equipment

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Reference no: EM131361045

An electronics firm is current manufacturing a product that has a variable cost of $0.70 per unit and a selling price of $1.25 per unit. Fixed costs are $16,000. Current sales volume is 35,000 units.The firm can substantially improve the product quality by adding a new piece of equipment that would increase the fixed cost by $8,000. Variable costs would increase to $0.85 per unit, but the volume is expected to increase to 55,000 units due to the higher quality of the product.

a) Based on current equipment: What is profit when selling 35,000 units?

b) Based on new equipment: What is profit when selling 60,000 units?

c) Based on your profit calculations-should the company buy the new equipment?

d) How many units would the company have to sell with the new equipment to generate a profit of $500?

Reference no: EM131361045

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