CSCP Inc., (the Co.) manufactures a product that costs $26 per unit plus $22,000 in fixed costs each month. The Co. currently sells 1,000 of these units per month for $70 each. If it leased a machine for $9,000 a month, it could add features to the product, which would allow it to sell for $125 each. It would cost $15 per unit in addition to the leasing cost of $9,000, to add these features. If the Co. decides to lease the machine and add features to its product, how will it affect (increase/decrease) the monthly profit and by how much

CSCP Inc.

If the Co. decides to lease the machine and add features to its product, it will increase the monthly profit by $57,000.

Explanation:

a) Data and Calculations:

                                  Normal Production    Leasing

Sales volume                        1,000                   1,000

Sales price                              $70                    $125

Variable costs                         $26                     $15

Fixed costs                     $22,000              $31,000

Sales Revenue               $70,000           $125,000

Variable costs                  26,000                15,000

Contribution                     44,000              110,000

Fixed costs                    $22,000             $31,000

Profit                              $22,000            $79,000

Increase in profit           $57,000

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