Spencer Inc.manufactures a product that costs $36 per unit plus $32,000 in fixed costs each month.Spencer currently sells 1,000 of these units per month for $80 each.If Spencer leased a machine for $8,000 a month,it could add features to the product that would allow it to sell for $120 each.It would cost an additional $12 per unit to add these features.How much would Spencer's profit be affected if it leased the machine and added features to its product?
A)Increase $32,000
B)Decrease $32,000
C)Increase $20,000
D)Decrease $20,000

Question

Quizplus · Accepted Answer

Without leasing the machine and adding features:
Total revenue = 1,000 x $80 = $80,000
Total cost = (1,000 x $36) + $32,000 = $68,000
Total profit = $80,000 - $68,000 = $12,000

If Spencer leases the machine and adds features:
Total revenue = 1,000 x $120 = $120,000
Total cost = (1,000 x ($36 + $12)) + $32,000 + $8,000 = $88,000
Total profit = $120,000 - $88,000 = $32,000

The profit increases by $20,000 if Spencer leases the machine and adds features. Therefore, the answer is C.