Beatie Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions. For illustration, the company has provided the following data for product K56L: What is the profitability index for product K56L?
A)0.40
B)$28.00 per gram
C)$11.20 per gram
D)$1,256,640

Question

Beatie Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions. For illustration, the company has provided the following data for product K56L:  What is the profitability index for product K56L?
A)0.40 
B)$28.00 per gram 
C)$11.20 per gram 
D)$1,256,640

Quizplus · Accepted Answer

To find the profitability index, we need to divide the present value of the cash inflows by the initial investment. In this case, the present value of the cash inflows is $1,280,000, and the initial investment is $114,000. Thus, the profitability index is $1,280,000 / $114,000 = 11.20 per gram. Option C is correct.

Beatie Corporation Would Like to Determine the Relative Profitability of the Company's