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Elmwood, Inc. currently sells 13,000 units of its product per year for $110 each. Variable costs...

Elmwood, Inc. currently sells 13,000 units of its product per year for $110 each. Variable costs total $85 per unit. Elmwood’s manager believes that if a new machine is leased for $224,250 per year, modifications can be made to the product that will increase its retail value. These modifications will increase variable costs by $15.00 per unit, but Elmwood is hoping to sell the modified units for $140 each.

a-1. Should Elmwood modify the units or sell them as is?

  • Sell as is

  • Sell with modifications



a-2. How much will the decision affect profit?



b. What is the least Elmwood could charge for the modified units to make it worthwhile to modify them? (Round your answer to 2 decimal places.)

  

c. The leasing company is willing to negotiate the price of the machine lease. What is the most Elmwood would be willing to pay to lease the machine if they plan to charge $140 for the modified units?

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