AudioCables, Inc., is currently manufacturing an adapter that has a variable cost of $.50 per unit and a selling price of $1.00 per unit. Fixed costs are $14,000. The current sales volume is 30,000 units. The firm can substantially improve product quality by adding a new piece of equipment at an additional fixed cost of $6,000. Variable costs would increase to $.60, but sales volume should jump to 50,000 units due to a higher-quality product. Should AudioCables buy the new equipment?
AudioCables, Inc., is currently manufacturing an adapter that has a variable cost of $.50 per unit and a selling price of $1.00 per unit. Fixed costs are $14,000. The current sales volume is 30,000 units. The firm can substantially improve product quality by adding a new piece of equipment at an additional fixed cost of $6,000. Variable costs would increase to $.60, but sales volume should jump to 50,000 units due to a higher-quality product. Should AudioCables buy the new equipment?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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AudioCables, Inc., is currently manufacturing an adapter that has a variable cost of $.50 per unit and a selling price of $1.00 per unit. Fixed costs are $14,000. The current sales volume is 30,000 units. The firm can substantially improve product quality by adding a new piece of equipment at an additional fixed cost of $6,000. Variable costs would increase to $.60, but sales volume should jump to 50,000 units due to a higher-quality product. Should AudioCables buy the new equipment?
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