In: Accounting
AudioCables, Inc., is currently manufacturing an adapter that has a variable cost of $0.60 per unit and a selling price of $1.20 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 $0.75, but sales volume should jump to 50,000 units due to a higher-quality product.
a. What is the current profit and proposed profit of the sales of AudioCables
The answer is "$4,000 and $2,500"
Explanation: Formula:
The scenario was revised by installing new audio connection equipment: The volume of revised sales Fixed cost updated Cost of the updated component
Unchanged purchase price/unit Audio cable sales are actually profiting = 4,000
Proposal for audio cable sales profit = 2,500