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The X Corp currently makes 100,000 units of output at $10 unit variable manufacturing costs and $1,200,000 fixed costs. The average unit sales price for

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The X Corp currently makes 100,000 units of output at $10 unit variable manufacturing costs and $1,200,000 fixed costs. The average unit sales price for its output, as per the existing contracts with X Corp's customers, is $35. The firm operates well below capacity (currently at around 70% of practical capacity), but the same holds for the entire industry, so market prices right now are cut-throat. The CFO of X Corp is dissatisfied with the firm's performance and has asked a task force to explore short-term initiatives to boost profit. The task force came back with two suggestions: (i To enter into a new contract with Z Inc. (ii) To invest in a new and more efficient machine. Each these suggestions can be implemented in isolation, or they can be implemented simultaneously. Each suggestion comes with a one-year horizon: the contract with Z in (i) expires after a year; the new machine in (ii) would be discarded after a year at zero salvage value. Calculate the change in X Corp's profit from entering into the contract with Z. Under this contract, X Corp would supply Z with an additional 20,000 units of X Corp's product at a unit price of $19. Accepting this order would come at arn incremental fixed cost of $200,000, representing payments X Corp would have to make to a logistics company. Accepting this order would not affect the existing contracts. a. b. gnore part a., and instead calculate the change in X Corp's profit from investing in the new machine. The new machine would come at acquisition cost of $380,000 and reduce the unit variable manufacturing costs by $3.50. Make an overall recommendation -what's the best course of action in this case for X Corp? C

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