Ernest mcdonald manufacures automobile parts for a japanese, Ask an Expert

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Ernest Mcdonald manufacures automobile parts for a Japanese car manufacturer. Currently, Ernest is manufacturing a special door handle that has a variable cost of $0.75 per unit and selling price of $1.25 per unit. Fixed Costs are $12,000. Current volume is 50,000 units. Ernest can substantially improve the product quality by adding a new piece od equipment at an additional Fixed cost of $5,000. Variable cost would increase to $1.00, but their volume should increase to 70,000 units due to the higher quality product.

A) Should Ernest Mcdonald buy the new equipment? Please show your work.

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92501670

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