Lake Tahoe Production manufactures a product that costs $250,000 per year plus $4.10 for each unit made. Lake Tahoe’s president is considering replacing the production equipment with a newer, more efficient system. While the new equipment reduces variable cost to $3.80 per unit, fixed cost increases to $325,000. The selling price of the product is $5.60 per unit.
Discuss:
- In terms of profit, should Lake Tahoe Production switch to the new equipment if the company can sell exactly 250,000 units? Why?
- In terms of profit, should Lake Tahoe Production switch to the new equipment if the company can sell exactly 245,000 units? Why?
- In terms of profit, should Lake Tahoe Production switch to the new equipment if the company can sell exactly 255,000 units? Why?
