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virtualanimosity
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 03:12
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Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!

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25% (medium)

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77% (01:40) correct 23% (01:57) wrong based on 106 sessions

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A company sells widgets for $15 each and can produce 3,000 per year; $5 of the product price is profit. The company is considering buying a new piece of equipment that will cost $100,000. The new machine will increase production to 5,000 units per year. How many years will it take the company to completely pay for the machine with it's profit.

A. 3
B. 4
C. 5
D. 6
E. 7
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lawschoolsearcher
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 03:33
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virtualanimosity
A company sells widgets for $15 each and can produce 3,000 per year; $5 of the product price is profit. The company is considering buying a new piece of equipment that will cost $100,000. The new machine will increase production to 5,000 units per year. How many years will it take the company to completely pay for the machine with it's profit.
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In a year, the company gets a profit of $5 per widget.

3,000 x 5 = 15,000 (profit per year)

How many 15,000 to make 100,000?

100,000/15,000 = 100/15 = 6.66 years

What's the OA?
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lawschoolsearcher
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 03:35
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lawschoolsearcher
virtualanimosity
A company sells widgets for $15 each and can produce 3,000 per year; $5 of the product price is profit. The company is considering buying a new piece of equipment that will cost $100,000. The new machine will increase production to 5,000 units per year. How many years will it take the company to completely pay for the machine with it's profit.

In a year, the company gets a profit of $5 per widget.

3,000 x 5 = 15,000 (profit per year)

How many 15,000 to make 100,000?

100,000/15,000 = 100/15 = 6.66 years

What's the OA?
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I'm actually a bit confused with the 5,000. My understanding is they are not using the machine yet to make 5,000 units and that it is still 3,000 units per year.
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 03:35
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virtualanimosity
A company sells widgets for $15 each and can produce 3,000 per year; $5 of the product price is profit. The company is considering buying a new piece of equipment that will cost $100,000. The new machine will increase production to 5,000 units per year. How many years will it take the company to completely pay for the machine with it's profit.
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Profit per year from the new machine = 5000*5=$25000
If it takes x years to completely pay for the price from the profit:

\(25000x > 100000\)
\(x > 100000/25000 \hspace{2} years\)
\(x>4 \hspace{2} years\)
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 03:38
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But no of units also increase to 5000....i think therefore answer should be-

5*5000=25000 profit each year

and to recover 1,00,000....4 yrs reqd


lawschoolsearcher
virtualanimosity
A company sells widgets for $15 each and can produce 3,000 per year; $5 of the product price is profit. The company is considering buying a new piece of equipment that will cost $100,000. The new machine will increase production to 5,000 units per year. How many years will it take the company to completely pay for the machine with it's profit.

In a year, the company gets a profit of $5 per widget.

3,000 x 5 = 15,000 (profit per year)

How many 15,000 to make 100,000?

100,000/15,000 = 100/15 = 6.66 years

What's the OA?
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 03:42
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fluke
virtualanimosity
A company sells widgets for $15 each and can produce 3,000 per year; $5 of the product price is profit. The company is considering buying a new piece of equipment that will cost $100,000. The new machine will increase production to 5,000 units per year. How many years will it take the company to completely pay for the machine with it's profit.

Profit per year from the new machine = 5000*5=$25000
If it takes x years to completely pay for the price from the profit:

\(25000x > 100000\)
\(x > 100000/25000 \hspace{2} years\)
\(x>4 \hspace{2} years\)
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My understanding of the given is different. I thought the 5,000 units per year WILL happen when they have the machine. How did you guys understand that they are already producing 5,000 units? :( Please help.
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 03:51
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fluke
virtualanimosity
A company sells widgets for $15 each and can produce 3,000 per year; $5 of the product price is profit. The company is considering buying a new piece of equipment that will cost $100,000. The new machine will increase production to 5,000 units per year. How many years will it take the company to completely pay for the machine with it's profit.

Profit per year from the new machine = 5000*5=$25000
If it takes x years to completely pay for the price from the profit:

\(25000x > 100000\)
\(x > 100000/25000 \hspace{2} years\)
\(x>4 \hspace{2} years\)

My understanding of the given is different. I thought the 5,000 units per year WILL happen when they have the machine. How did you guys understand that they are already producing 5,000 units? :( Please help.
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I think you have a point. I just considered it as a problem where the 2nd machine is replacing 1st machine and put to use straightaway. Now, we need to calculate the profit from the 2nd machine to pay for its own cost. Guess the production information about 2nd machine influenced my thinking. Not too sure about my answer. thanks for pointing out.

What's the OA?
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 03:52
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virtualanimosity
A company sells widgets for $15 each and can produce 3,000 per year; $5 of the product price is profit. The company is considering buying a new piece of equipment that will cost $100,000. The new machine will increase production to 5,000 units per year. How many years will it take the company to completely pay for the machine with it's profit.
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Company can already produce 3000 widgets.


By buying the new machine and spending $100,000 for the same, they are able to produce 2000 units more.

So, incremental profit made possible by new machine is

\(2000*5 = 10,000\)

Hence, the number of years will it take the company to completely pay for the machine with it's profit is \(\frac{100,000}{10,000} = 10\) years
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 10:55
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That makes sense - thanks beyondgmatscore ! Or else the initial rate 3000/yr is redundant.
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 17:35
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with the new machine company should be able to produce 5000 units per year

and profit on each product = $5

total profit/yr after buying new machine = 5000*5 = $25,000.

So it would take 4 years for the company to repay $100,000
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 18:49
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lawschoolsearcher


My understanding of the given is different. I thought the 5,000 units per year WILL happen when they have the machine. How did you guys understand that they are already producing 5,000 units? :( Please help.
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Actually it is a question based on a common business concept. Say you want to buy a machine for $1000 which will print one $100 bill every day. How long will it take you to recover your costs (your investment in the machine)? Of course 10 days.

This is exactly the same concept. The cost of the machine is $100,000. How long will it take the company to pay for the machine with its profits... Though, we instinctively decide that this is what it means, I do agree that the question should be worded more clearly e.g. 'How long will it to take to recover costs ... etc'

Also, we account for the profit of the entire 5000 units, not just of the additional units because the questions states 'How many years will it take the company to completely pay for the machine with its profit?'

'Its' stands for the company here and 'its profits' are profits from the 5000 units. As first glance, I thought that we need to consider only the extra 2000 units but I read the question carefully again and noticed that they don't say 'with its additional profit'. They just say 'with its profit' which has to be the profit of the company which is the profit from all 5000 units.
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A company sells widgets for $15 each and can produce 3,000 per year; $ 12 Apr 2011, 20:34
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Profit after machine = 5000 * 5 = 25000

25000 * n = 100000

=> n = 4
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A company sells widgets for $15 each and can produce 3,000 per year; $ 18 Feb 2020, 07:52
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