Techno Corporation is currently manufacturing an item atvariable costs of $5 per unit. Annual fixed costs of manufac-turing this item are $140,000. The current selling price ofthe item is $10 per unit, and the annual sales volume is30,000 units.a. Techno can substantially improve the item’s quality byinstalling new equipment at additional annual fixed costsof $60,000. Variable costs per unit would increase by $1,but, as more of the better-quality product could be sold,the annual volume would increase to 50,000 units. ShouldTechno buy the new equipment and maintain the currentprice of the item? Why or why not?b. Alternatively, Techno could increase the selling price to$11 per unit. However, the annual sales volume wouldbe limited to 45,000 units. Should Techno buy the newequipment and raise the price of the item? Why orwhy not?
Techno Corporation is currently manufacturing an item at
variable costs of $5 per unit. Annual fixed costs of manufac-
turing this item are $140,000. The current selling price of
the item is $10 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 $60,000. Variable costs per unit would increase by $1,
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?
b. Alternatively, Techno could increase the selling price to
$11 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?
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