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:

Monetary Compensation

Financial payment given to an individual or entity for loss, suffering, or injury as a form of restitution.

Rescission

The act of cancelling a contract and returning all involved parties to the positions they were in before the contract was made.

Innocent

Innocent refers to not being guilty of a crime or offense, or lacking knowledge of wrongdoing.

Void

Void refers to a legal declaration that a contract or transaction is null, having no effect or force in law, typically due to failing to meet certain legal requirements.