Techno Corporation is currently manufacturing an item at variable costs of $4 per unit. Annual fixed costs of manufacturing this item are $140,000. The current selling price of the item is $10 per unit, and the annual sales volume is 25,000 units. a. Techno can substantially improve the item's quality by installing new equipment at additional annual fixed costs of $60,000. Variable costs per unit would increase by $1, but, as more of the better-quality product could be sold, the annual volume would increase to 50,000 units. Should Techno buy the new equipment and maintain the current price of the item? Why or why not? (1) because the profit (2). from $ to $ (Enter your responses as integers.) b. Alternatively, Techno could increase the selling price to $11 per unit. However, the annual sales volume would be limited to 40,000 units. Should Techno buy the new equipment and raise the price of the item? Why or why not? (3) because the profit (4) (1) No (2) O decreases (3) Yes O Yes O No 00 O increases from $ (4) increases O decreases to $ (Enter your responses as integers.)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

A4

Techno Corporation is currently manufacturing an item at variable costs of $4 per unit. Annual fixed costs of manufacturing this item are $140,000. The current selling price of the item is $10 per unit, and the
annual sales volume is 25,000 units.
a. Techno can substantially improve the item's quality by installing new equipment at additional annual fixed costs of $60,000. Variable costs per unit would increase by $1, but, as more of the better-quality
product could be sold, the annual volume would increase to 50,000 units. Should Techno buy the new equipment and maintain the current price of the item? Why or why not?
(1).
because the profit (2)
from $
to $
(Enter your responses as integers.)
b. Alternatively, Techno could increase the selling price to $11 per unit. However, the annual sales volume would be limited to 40,000 units. Should Techno buy the new equipment and raise the price of the item?
Why or why not?
(3).
(1) ○ No
O Yes
because the profit (4)
00
(2) O decreases
O increases
00
(3) Yes
O No
from $
(4) O
O
increases
decreases
to $
(Enter your responses as integers.)
Transcribed Image Text:Techno Corporation is currently manufacturing an item at variable costs of $4 per unit. Annual fixed costs of manufacturing this item are $140,000. The current selling price of the item is $10 per unit, and the annual sales volume is 25,000 units. a. Techno can substantially improve the item's quality by installing new equipment at additional annual fixed costs of $60,000. Variable costs per unit would increase by $1, but, as more of the better-quality product could be sold, the annual volume would increase to 50,000 units. Should Techno buy the new equipment and maintain the current price of the item? Why or why not? (1). because the profit (2) from $ to $ (Enter your responses as integers.) b. Alternatively, Techno could increase the selling price to $11 per unit. However, the annual sales volume would be limited to 40,000 units. Should Techno buy the new equipment and raise the price of the item? Why or why not? (3). (1) ○ No O Yes because the profit (4) 00 (2) O decreases O increases 00 (3) Yes O No from $ (4) O O increases decreases to $ (Enter your responses as integers.)
Expert Solution
steps

Step by step

Solved in 4 steps with 4 images

Blurred answer
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education