Answer:
No
Explanation:
In this question ,we compute the profit/net income
Net income = Sales - variable cost - fixed cost
where,
Sales = current volume × selling price per unit
= 50,000 units × $1.25 per unit
= $62,500
Variable cost = current volume × variable cost per unit
= 50,000 units × $0.75 per unit
= $37,500
And, the fixed cost is $12,000
Now put these values to the above formula
So, the value would equal to
= $62,500 - $37,500 - $12,000
= $13,000
Now
Updated sales = updated volume × selling price per unit
= 70,000 units × $1.25 per unit
= $87,500
Updated fixed cost = updated volume × increased variable cost per unit
= 70,000 units × $1.00 per unit
= $70.000
And, updated fixed cost = Fixed cost + increased fixed cost
= $12,000 + $5,000
= $17,000
Now put these values to the above formula
So, the value would equal to
= $87,500 - $70,000 - $17,000
= $500
Since, the profit reduced from $13,000 to $500. So, the company should not buy the new equipment
