Basic Economic Accounting Lake Tahoe Production manufactures a product that costs $250,000 per year plus $4.10 for each unit made. Lake Tahoe’s president i

Basic Economic Accounting Lake Tahoe Production manufactures a product that costs $250,000 per year plus $4.10 for each unit made. Lake Tahoe’s president is considering replacing the production equipment with a newer, more efficient system. While the new equipment reduces variable cost to $3.80 per unit, fixed cost increases to $325,000. The selling price of the product is $5.60 per unit.

Discuss:

In terms of profit, should Lake Tahoe Production switch to the new equipment if the company can sell exactly 250,000 units? Why?
In terms of profit, should Lake Tahoe Production switch to the new equipment if the company can sell exactly 245,000 units? Why?
In terms of profit, should Lake Tahoe Production switch to the new equipment if the company can sell exactly 255,000 units? Why?

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