In the last 6 months, demand for one of Appleby Companys products has dropped off considerably, due mainly to it becoming obsolescent as a result of technological change. Knowing that the equipment used in the manufacture of this product may not be easy to sell, Appleby spent $50,000 on consultants to determine whether it could use the equipment to produce a new product under license by another company. The consultant has determined that this product would have variable production costs of $65 per unit and should sell at a price of $90/unit. The licensing royalty is 5% of gross product revenue. Estimated annual demand is 20,000 units per year. Additional annual operating costs related to this product are $30,000/year (excluding depreciation). Depreciation on the equipment is $15,000/year.

Assuming the information above is correct, the relevant costs are:

Question 13Answer

a.

$30,000/year plus $65 per unit

b.

$45,000/year plus $65 per unit

c.

$45,000/year plus $74 per unit

d.

$30,000/year plus $69.5 per unit