Easy-Tech Soft ware Corporation is evaluating theproduction of a new soft ware product to compete with thepopular word processing soft ware currently available. Annualfi xed costs of producing the item are estimated at $150,000, andthe variable cost is $10 per unit. Th e current selling price of theitem is $35 per unit, and the annual sales volume is estimated at50,000 units.(a) Easy-Tech is considering adding new equipment thatwould improve soft ware quality. Th e negative aspect ofthis new equipment would be an increase in both fi xedand variable costs. Annual fi xed costs would increase by$50,000 and variable costs by $3. However, marketingexpects the better-quality product to increase demandto 70,000 units. Should Easy-Tech purchase this newequipment and keep the price of their product the same?Explain your reasoning.(b) Another option being considered by Easy-Tech is theincrease in the selling price to $40 per unit to off set theadditional equipment costs. However, this increase wouldresult in a decrease in demand to 40,000 units. ShouldEasy-Tech increase its selling price if it purchases the newequipment? Explain your reasoning.
Easy-Tech Soft ware Corporation is evaluating the
production of a new soft ware product to compete with the
popular word processing soft ware currently available. Annual
fi xed costs of producing the item are estimated at $150,000, and
the variable cost is $10 per unit. Th e current selling price of the
item is $35 per unit, and the annual sales volume is estimated at
50,000 units.
(a) Easy-Tech is considering adding new equipment that
would improve soft ware quality. Th e negative aspect of
this new equipment would be an increase in both fi xed
and variable costs. Annual fi xed costs would increase by
$50,000 and variable costs by $3. However, marketing
expects the better-quality product to increase demand
to 70,000 units. Should Easy-Tech purchase this new
equipment and keep the price of their product the same?
Explain your reasoning.
(b) Another option being considered by Easy-Tech is the
increase in the selling price to $40 per unit to off set the
additional equipment costs. However, this increase would
result in a decrease in demand to 40,000 units. Should
Easy-Tech increase its selling price if it purchases the new
equipment? Explain your reasoning.
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