Answer:
No
Explanation:
To determine the profit or net income, we calculate:
Net income = Sales - variable costs - fixed costs
where,
Sales = current volume × selling price per unit
= 50,000 units × $1.25 per unit
= $62,500
Variable costs = current volume × variable cost per unit
= 50,000 units × $0.75 per unit
= $37,500
With fixed costs at $12,000, we can now apply these figures:
So, the calculation becomes
= $62,500 - $37,500 - $12,000
= $13,000
Next,
Updated sales = updated volume × selling price per unit
= 70,000 units × $1.25 per unit
= $87,500
Updated variable cost = updated volume × increased variable cost per unit
= 70,000 units × $1.00 per unit
= $70,000
And the new fixed costs = fixed cost + increased fixed cost
= $12,000 + $5,000
= $17,000
Plugging these numbers back into the initial equation gives us:
= $87,500 - $70,000 - $17,000
= $500
As the profit declines from $13,000 to $500, the company should not invest in the new equipment.
