Techno Corporation is currently manufacturing an item at variable costs of $4 pe
ID: 387653 • Letter: T
Question
Techno Corporation is currently manufacturing an item at variable costs of $4 per unit. Annual fixed costs of manufacturing this item are S141,000. The current selling price of the item is $11 per unit, and the annual sales volume is 30,000 units. a. Techno can substantially improve the item's quality by installing new equipment at additional annual fixed costs of $55,000. Variable costs per unit would increase by $2, 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? .because the proftromto S(Entor your responses as integers) b. Altematively, Techno could increase the selling price to $13 per unit. However, the annual sales volume would be limited to 45,000 units. Should Techno buy the new equipment and raise the price of the item? Why or why not? 7.because the prolefromos(Enter your respones sneg) V because the profitExplanation / Answer
Given that, Variable cost = $4/Unit, Fixed cost = $141,000, Selling price = $11/Unit and Volume = 30,000 units
Profit = (Seling price x Volume) - (Variable cost x Volume) - Fixed cost
= (11 x 30000) - (4 x 30000) - (141000) = $69,000
A) Variable cost = $6/Unit, Fixed cost = $141,000 + 55000 = $196,000,
Selling price = $11/Unit and Volume = 50,000 units
Profit = (Seling price x Volume) - (Variable cost x Volume) - Fixed cost
= (11 x 50000) - (4 x 50000) - (196000) = $54,000
Since, the profit in buying a new equipment is less than original profit, one should not buy and install the new equipment.
B) Variable cost = $6/Unit, Fixed cost = $196,000, Selling price = $13/Unit and Volume = 45,000 units
Profit = (Seling price x Volume) - (Variable cost x Volume) - Fixed cost
= (13 x 30000) - (4 x 30000) - (141,000) = $119,000
Since, in this case, the profit is higher than original strategy, one should buy the new equipment and raise the price.
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