udioCables, Inc., is currently manufacturing an adapter that has a variable

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

Expert Solution

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

Junaid answered 2 years ago

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