Question

Maple Inc. manufactures a product that costs $21 per unit plus $46,000 in fixed costs each month. Maple currently sells 5,000 of these units per month for $43 each. If Maple leased a machine for $10,000 a month, it could add features to the product that would allow it to sell for $46 each. It would cost an additional $4 per unit to add these features. How much would Maple's profit be affected if it leased the machine and added features to its product?

• Increase $200,000

• Decrease $15,000

• Increase $5,000

• Decrease $200,000

Answer 1

Income statement (Current)

sales (5,000 x 43)	215,000
Less :
variable costs (5,000 x 21)	-105,000
Fixed costs	-46,000
Net profit	$64,000

Due to new machine, selling price per unit will become $46, variable cost per unit will become $25 and fixed cost cost will become $56,000

Income statement (Current)

sales (5,000 x 46)	230,000
Less :
variable costs (5,000 x 25)	-125,000
Fixed costs	-56,000
Net profit	$49,000

If machine is leased, profit will decrease by = 64,000 - 49,000

= $15,000

Second option is correct