Widgets, Inc. currently sells 12,000 units of its product per year for $100 each. Variable costs total $75 per unit. Widgets’ 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 Widgets, Inc. is hoping to sell the modified units for $130 each.
a. Should Widgets, Inc. modify the units or sell them as is? How much will the decision affect profit? Answer here:
b. What is the least Jackson could charge for the modified units to make it worthwhile to modify them? Answer here:
c. The leasing company is willing to negotiate the price of the machine lease. What is the most Jackson would be willing to pay to lease the machine if they plan to charge $130 for the modified units? Answer here: