Pinehurst,Inc

question 86

Essay

Pinehurst,Inc.currently sells 20,000 units of its product per year for $200 each.Variable costs total $75 per unit.Pinehurst' manager believes that if a new machine is leased for $250,000 per year,modifications can be made to the product that will increase its retail value.These modifications will increase variable costs by $50 per unit,but Pinehurst is hoping to sell the modified units for $275 each.
a.Should Pinehurst modify the units or sell them as is? How much will the decision affect profit?
b.What is the least Pinehurst 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 Pinehurst would be willing to pay to lease the machine if they plan to charge $275 for the modified units?

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Definitions:

Side Effects

Unintended and sometimes harmful effects experienced as a result of taking a medication or undergoing a medical treatment or procedure.

Sensitivity to Reward

The level of responsiveness to positive reinforcement or rewards.

Manic Symptoms

Symptoms characterized by an abnormally elevated or irritable mood, increased energy or activity levels, and other extreme changes in behavior or thought patterns, seen in bipolar disorder.

Mood Disorders

A category of psychiatric conditions related to persistent disturbances in a person's mood, altering their emotional state.