Purchase of new equipment
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AudioCables, Inc. is currently manufacturing an adapter that has a variable cost of $.50 per unit and selling price of $1.00 per unit. Fixed cost are $14,000. Current sales volume is 30,000 units. The firm can substantially improve the product quality by adding a new piece of equipment at an additional fixed cost of $6000. Variable costs would increase to $.60 but sales volume should jump to 50,000 units due to higher quality product. Should Audio Cables buy the new equipment?
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Solution Summary
The solution explains whether the company should buy the new equipment using the example in the question. All the steps are clearly explained and outlined. The answer is very easy to understand and can be followed along with anyone who has a basic understanding of the subject. Overall, an excellent response to the question.
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Current Profit = 30,000*1 - 30,000*.5 - 14,000 = 1,000
Profit after ...
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