A company is evaluating which of two alternatives should be used to produce a product that will sell for $35.00 per unit.The following cost information describes the two alternatives: If total demand (volume)is 120,000 units,then the company should
A)select Process A with a profit of $940,000 to maximize profit.
B)select Process B with a profit of $450,000 to maximize profit.
C)select Process A with a profit of $700,000 to maximize profit.
D)select Process B with a profit of $690,000 to maximize profit.

Question

A company is evaluating which of two alternatives should be used to produce a product that will sell for $35.00 per unit.The following cost information describes the two alternatives:  If total demand (volume)is 120,000 units,then the company should
A)select Process A with a profit of $940,000 to maximize profit. 
B)select Process B with a profit of $450,000 to maximize profit. 
C)select Process A with a profit of $700,000 to maximize profit. 
D)select Process B with a profit of $690,000 to maximize profit.

Quizplus · Accepted Answer

To determine the best choice, we need to calculate the profit for each alternative.

For Process A, the profit is calculated as: 
[$35.00 (selling price) - $16.00 (variable cost) - $5.00 (fixed cost)] * 120,000 = $700,000

For Process B, the profit is calculated as: 
[$35.00 (selling price) - $18.00 (variable cost) - $4.00 (fixed cost)] * 120,000 = $690,000

Therefore, the best choice is to select Process A with a profit of $700,000 to maximize profit.

A Company Is Evaluating Which of Two Alternatives Should Be