Question

Ingram Industries is considering two alternative new machines. Machine 1 would bring in revenues of $70,000, have variable costs of $42,000, and fixed costs of $14,000. Machine 2 would bring in revenues of $84,000, have variable costs of $42,000, and fixed costs of $22,400. What is the incremental profit?

A: $70,000 - $42,000 revenue - $14,000 = $14,000
B: $84,000 - $42,000 revenue- 22400 =19,600
19600 - 14000

Answer 1

The incremental profit for machine 1 is $14,000.

The incremental profit for machine 2 is $19,600.

Step-by-step explanation:

For machine 1, the revenue is $70,000, the variable costs is $42,000, and the fixed costs is $14,000.

For machine 2, the revenue is $84,000, the variable costs is $42,000, and the fixed costs is $22,400.

The incremental profit for machine 1 is

= Total Revenue - Fixed costs - Variable costs

= $70,000 - $14,000 - $42,000

= $14,000

The incremental profit for machine 2 is

= Total Revenue - Fixed costs - Variable costs

= $84,000 - $22,400 - $42,000

= $19,600