1. Audio Cables, Inc. is currently manufacturing an adapter that has a variable cost of $0.50 and a selling price of $1.00 per unit. Fixed costs are $14000. Current sales volume is 30,000. The form can substantially improve the product quality by adding a new piece of equipment at an additional cost of $6000. Variable costs would increase to $0.60, but sales volume should jump to 50,000 units due to a higher-quality product. Should AudioCables buy the new equipment?
2. Aldo Renoldo drives his own car on company business. His employer reimburses him for such travel at the rate of 36 cents per mile. Aldo estimates his fixed cost per year such as taxes, insurance and depreciation to be $2052. The direct and variable costs such as gas, oil and maintenance average about 14.4 cents per mile. How many miles must he drive each year to break even?
1. Calculate the operating income now and the operating income after the change. If operating income increases, the new equipment can be purchased.
Operating Income = (Selling ...
This solution provides a breakeven analysis for AudioCables and Aldo Renoldo.