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 have to charge for the product with additional features to make it worthwhile to lease the machine?
A)$48
B)$76
C)$88
D)$100

Question

Quizplus · Accepted Answer

To make leasing the machine worthwhile, Spencer Inc. must at least break even on the additional costs incurred by the lease and the added features. The current cost to produce one unit is $36. With the additional features, the cost per unit increases by $12, making it $48 per unit. The fixed costs increase by $8,000 due to the lease, making total fixed costs $40,000. To break even, the new selling price must cover the increased variable and fixed costs. The calculation for the break-even price per unit does not directly involve these costs but aims to ensure that the additional investment leads to at least the same profit margin or better. Given the significant increase in the selling price to $120, the question actually asks for the minimum selling price to justify the lease, assuming the context implies covering the new costs. The correct interpretation involves ensuring the new setup (leasing plus additional features) does not result in a loss compared to the original scenario. However, the provided information and choices seem to focus on the direct costs associated with producing the unit after leasing the machine, which is $48, not accounting for the need to cover the entirety of the new fixed costs and additional variable costs in a break-even analysis or profit comparison. The question as stated might be misleading in its simplification, but based on the direct cost increase per unit, $48 is the new cost to produce one unit, not the selling price. The correct selling price to make it worthwhile, considering the added value and costs, would be calculated based on ensuring that the additional costs are covered and a profit margin is maintained, which is not directly answerable with the provided choices without further clarification on the expected profit or break-even analysis. The mistake in the explanation is acknowledging the misinterpretation of the question's aim regarding the selling price that justifies the new costs. The correct approach involves analyzing the profit margin or break-even point, which requires a detailed calculation not directly provided in the question or choices.