Ernest Mcdonald manufacures automobile parts for a Japanese car manufacturer. Currently, Ernest is manufacturing a special door handle that has a variable cost of $0.75 per unit and selling price of $1.25 per unit. Fixed Costs are $12,000. Current volume is 50,000 units. Ernest can substantially improve the product quality by adding a new piece od equipment at an additional Fixed cost of $5,000. Variable cost would increase to $1.00, but their volume should increase to 70,000 units due to the higher quality product.
A) Should Ernest Mcdonald buy the new equipment? Please show your work.