Question

M1 IND1. A firm is currently manufacturing and selling a product using Process X that has a variable cost of $22.75 per unit and a selling price of $34.95 per unit. Fixed costs are $21,500. Current sales volume is 6,500 units. The firm can substantially improve the product quality by changing to Process Y which would increase the fixed cost by $14,000. Variable costs would increase to $25.65 per unit, but the volume is expected to increase to 9,200 units due to the higher quality of the product. a) b) c) d) Based on Process X: What is profit when selling 6,500 units? Based on Process Y: What is profit when selling 9,200 units? Based on your profit calculations-should the company change to Process Y? How many units would the company have to sell with the Process Y to generate a profit of at least $40,000?
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Answer #1

fiedlt 161,370 unt CO -0) Yun unit -$ 25.65 23 S, 980 ,2

Net sel =f50, 060 pres y Cost t ficad Cot

→ Net profit ymoo q. 30 > 8,118.28.

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