Polaris Corporation is considering upgrading an existing product; information pertaining to this decision is as follows:...
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Polaris Corporation is considering upgrading an existing product; information pertaining to this decision is as follows: the upgraded product will have a life of three years which is the same as the remaining life of the existing product no additional equipment will be required to manufacture the upgraded product the upgrade will require a one-time expense of $250,000 • direct materials and direct labour costs will increase by $2 and $1 per unit respectively • variable overhead is charged using a rate equal to 50% of direct labour cost • fixed overhead is currently charged using a rate equal to 100% of direct labour cost Polaris can charge its customers an additional $5 per unit Required: 1. Compute the sales level per year at which Polaris will be indifferent between the two alternatives of selling the product as is or upgrading it. 2. Assume that sales are projected to be 60,000 per year for the next three years. Compute the net gain (or loss) if management decides to upgrade the product. Polaris Corporation is considering upgrading an existing product; information pertaining to this decision is as follows: the upgraded product will have a life of three years which is the same as the remaining life of the existing product no additional equipment will be required to manufacture the upgraded product the upgrade will require a one-time expense of $250,000 • direct materials and direct labour costs will increase by $2 and $1 per unit respectively • variable overhead is charged using a rate equal to 50% of direct labour cost • fixed overhead is currently charged using a rate equal to 100% of direct labour cost Polaris can charge its customers an additional $5 per unit Required: 1. Compute the sales level per year at which Polaris will be indifferent between the two alternatives of selling the product as is or upgrading it. 2. Assume that sales are projected to be 60,000 per year for the next three years. Compute the net gain (or loss) if management decides to upgrade the product.
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Answer let the Sales Level be x unit 2 If Net Sales are 60000 Per year Amount Amount 300000 5x L... View the full answer
Related Book For
Principles of Corporate Finance
ISBN: 978-0077404895
10th Edition
Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen
Posted Date:
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