Elmwood,Inc

question 21

Essay

Elmwood,Inc.currently sells 12,000 units of its product per year for $100 each.Variable costs total $75 per unit.Elmwood's manager believes that if a new machine is leased for $147,000 per year,modifications can be made to the product that will increase its retail value.These modifications will increase variable costs by $20 per unit,but Elmwood is hoping to sell the modified units for $130 each.
a.Should Elmwood modify the units or sell them as is? 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?
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 $130 for the modified units?

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Definitions:

Conditional Cash

Money awarded or transferred under specific conditions or requirements, often used in social programs to encourage positive behaviors.

Unproductive Spending

Expenses that do not contribute to the growth or productivity of an economy, often seen as wasteful or inefficient.

Industrially Advanced Countries

Nations characterized by high levels of industrialization, technological advancement, and higher standards of living.

Economic Growth

The increase in the value of goods and services produced by an economy over time, typically measured as the percent change in real GDP.