Kendra's Quilts makes custom baby quilts embroidered with the baby's name and date of birth. The company is considering the purchase of a new embroidery machine that costs $75,000. The increased efficiency of the new machine would allow the company to increase revenue by 50%, from $250,000 to $375,000 annually. Direct labor costs would increase by $15,000, and fixed costs (not including depreciation on the machine) would increase by $12,500. Factory rent is $12,000 per year. Should the company purchase the machine?

Question

Jazlyn Frey

Business

1 July, 11:32

Kendra's Quilts makes custom baby quilts embroidered with the baby's name and date of birth. The company is considering the purchase of a new embroidery machine that costs $75,000. The increased efficiency of the new machine would allow the company to increase revenue by 50%, from $250,000 to $375,000 annually. Direct labor costs would increase by $15,000, and fixed costs (not including depreciation on the machine) would increase by $12,500. Factory rent is $12,000 per year. Should the company purchase the machine?

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Answers (1)

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Rowland · Answer 1

They should purchase the machine.

Explanation:

Giving the following information:

The company is considering the purchase of a new embroidery machine that costs $75,000. The increased efficiency of the new machine would allow the company to increase revenue by 50%, from $250,000 to $375,000 annually. Direct labor costs would increase by $15,000, and fixed costs (not including depreciation on the machine) would increase by $12,500.

Effect on income = 125,000 - 75,000 - 15,000 - 12,500 = $22,500

They should purchase the machine.