Question: Carter Manufacturing is currently producing a tape holder that has a variable cost of $0.75 per unit and a selling price of $2.00 per unit. Fixed costs are $20,000. Current volume is 40,000 units. The firm can produce a better product by adding a new piece of equipment to the process line. This equipment represents an increase of $5,000 in fixed cost. The variable cost would decrease $0.25 per unit. Volume for the new and improved product should rise to 50,00 units.
a) Should the company invest in the new equipment?
b) at what volume does the equipment choice change?
c) at a volume of 15,000 units, which process should be used?