Current:
Variable cost VC = $4 per unit
Fixed cost FC= 140000
Selling price P = $11
Sales volume Q = 35000
Profit = (P-VC) Q – FC
Profit = (11-4)35000 – 140000 = $1, 05,000
a)
Variable cost VC = $5 per unit
Fixed cost FC= =140000+55000 = 195000
Selling price P = $11
Sales volume Q = 55000
Profit = (11-5)55000 – 195000 = 1, 35000
Yes Techno should buy new equipment as the profit increases from 105000 to 135000
b)
Variable cost VC = $5 per unit
Fixed cost FC= =140000+55000 = 195000
Selling price P = $13
Sales volume Q = 40000
Profit = (13-5)40000 – 195000 =320000 – 195000 = 125000
No because the profit decreases from 135000 to 125000
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