QUESTION 3 Claypool Ltd sold 30,000 units of its product for $50 per unit in 2020. Variable cost per unit is $30 and total fixed costs are $350,000. Tax rate is 30% The after-tax profa for year 2020 is $175,000. Claypool's production manager, Paul Andon, is preparing the production plan for 2021, He believes that Claypool's current manufacturing process is labour intensive therefore, the variable cost is high. He has proposed investing in state-of-the-art manufacturing equipment which will reduce the number of labour hours needed for production. If Claypool Lud invests in the manufacturing equipment, the annual fixed cost will increase by $120,000 and the variable cost will decrease by $12 per unit. Required: a. Calculate the quantity of products Claypool Ltd would need to sell in year 2021 to achieve the same profit as year 2020. b. Should Claypool Ltd invest in the manufacturing equipment? Why or why not? -
QUESTION 3 Claypool Ltd sold 30,000 units of its product for $50 per unit in 2020. Variable cost per unit is $30 and total fixed costs are $350,000. Tax rate is 30% The after-tax profa for year 2020 is $175,000. Claypool's production manager, Paul Andon, is preparing the production plan for 2021, He believes that Claypool's current manufacturing process is labour intensive therefore, the variable cost is high. He has proposed investing in state-of-the-art manufacturing equipment which will reduce the number of labour hours needed for production. If Claypool Lud invests in the manufacturing equipment, the annual fixed cost will increase by $120,000 and the variable cost will decrease by $12 per unit. Required: a. Calculate the quantity of products Claypool Ltd would need to sell in year 2021 to achieve the same profit as year 2020. b. Should Claypool Ltd invest in the manufacturing equipment? Why or why not? -
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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