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Question
AudioCables, Inc., is currently manufacturing an adapter that has a variable cost of $0.60 per unit and a selling price of $1.10 per unit. Fixed costs are $14,000. Current sales volume is 35,000 units. The firm can substantially improve the product quality by adding a new piece of equipment at an additional fixed cost of $6,000. Variable costs would increase to $0.75, but sales volume should jump to 60,000 units due to a higher-quality product.
What is the current profit and proposed profit of the sales of AudioCables?
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