Question

CSCP Inc., (the Co.) manufactures a product that costs $26 per unit plus $22,000 in fixed costs each month. The Co. currently sells 1,000 of these units per month for $70 each. If it leased a machine for $9,000 a month, it could add features to the product, which would allow it to sell for $125 each. It would cost $15 per unit in addition to the leasing cost of $9,000, to add these features. If the Co. decides to lease the machine and add features to its product, how will it affect (increase/decrease) the monthly profit and by how much

Answer 1

CSCP Inc.

If the Co. decides to lease the machine and add features to its product, it will increase the monthly profit by $57,000.

Step-by-step explanation:

a) Data and Calculations:

Normal Production Leasing

Sales volume 1,000 1,000

Sales price $70 $125

Variable costs $26 $15

Fixed costs $22,000 $31,000

Sales Revenue $70,000 $125,000

Variable costs 26,000 15,000

Contribution 44,000 110,000

Fixed costs $22,000 $31,000

Profit $22,000 $79,000

Increase in profit $57,000