The Gigadigit Manufacturing Inc. is considering to produce a new product. The following data have been provided to managemer Sales price Equipment cost $17.50/unit $250,000 Incremental overhead cost S50,000/year Sales and marketing cost S150,000/year Operating and maintenance cost $25/operating hour Production time/1,000 units 100 hours Packaging and shipping cost s0.50/unit Planning horizon Minimum attractive rate of return 15% 5 years The managers would like to know the viability of this product and how it would roll out in sales. (a) To give them basis and insight what is the break-even value of units that must be sold annually to keep the product viable? (b) If the target revenue is from 30,000 units sold, what is the expected profit? (c) If the profit drops by 13% due to equipment replacement, how much must have been the cost of the alternative equipment? (d) Provide graph for (a)

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Chapter1: Making Economics Decisions
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The Gigadigit Manufacturing Inc. is considering to produce a new product. The following data have been provided to management:
Sales price
S17.50/unit
Equipment cost
S250,000
Incremental overhead cost
|550,000/year
Sales and marketing cost
$150,000/year
Operating and maintenance cost $25/operating hour
Production time/1,000 units
100 hours
Packaging and shipping cost
s0.50/unit
Planning horizon
Minimum attractive rate of return 15%
5 years
The managers would like to know the viability of this product and how it would roll out in sales.
(a) To give them basis and insight what is the break-even value of units that must be sold annually to keep the product viable?
(b) If the target revenue is from 30,000 units sold, what is the expected profit?
(C) If the profit drops by 13% due to equipment replacement, how much must have been the cost of the alternative equipment?
(d) Provide graph for (a)
Transcribed Image Text:The Gigadigit Manufacturing Inc. is considering to produce a new product. The following data have been provided to management: Sales price S17.50/unit Equipment cost S250,000 Incremental overhead cost |550,000/year Sales and marketing cost $150,000/year Operating and maintenance cost $25/operating hour Production time/1,000 units 100 hours Packaging and shipping cost s0.50/unit Planning horizon Minimum attractive rate of return 15% 5 years The managers would like to know the viability of this product and how it would roll out in sales. (a) To give them basis and insight what is the break-even value of units that must be sold annually to keep the product viable? (b) If the target revenue is from 30,000 units sold, what is the expected profit? (C) If the profit drops by 13% due to equipment replacement, how much must have been the cost of the alternative equipment? (d) Provide graph for (a)
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