AudioCables, Incorporated, is currently manufacturing an adapter that has a variable cost of
$0.75
per unit and a selling price of
$1.60
per unit. Fixed costs 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
$6,000
. Variable costs would increase to
$0.90
, but sales volume should jump to 50,000 units due to a higher-quality product.
a. What is the current profit and proposed profit from the sales of AudioCables?
Note: Negative amounts should be indicated by a minus sign.
\table[[Current profit,],[Proposed profit,]]
b. Should AudioCables buy the new equipment?
No
Yes
There is insufficient information provided to answer this question.