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 150,000 units,then the company should
A)select Process A with a profit of $1,300,000 to maximize profit.
B)select Process B with a profit of $750,000 to maximize profit.
C)select Process A with a profit of $1,000,000 to maximize profit.
D)select Process B with a profit of $1,050,000 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 150,000 units,then the company should
A)select Process A with a profit of $1,300,000 to maximize profit. 
B)select Process B with a profit of $750,000 to maximize profit. 
C)select Process A with a profit of $1,000,000 to maximize profit. 
D)select Process B with a profit of $1,050,000 to maximize profit.

Quizplus · Accepted Answer

To determine which option will maximize profit, we need to calculate the total revenue and total cost for each process.

Option A:
Total revenue = $35 * 150,000 units = $5,250,000
Total cost = $2,700,000 + $900,000 + $250,000 + $1,000,000 = $4,850,000
Profit = Total revenue - Total cost = $5,250,000 - $4,850,000 = $400,000

Option B:
Total revenue = $35 * 150,000 units = $5,250,000
Total cost = $2,900,000 + $1,400,000 = $4,300,000
Profit = Total revenue - Total cost = $5,250,000 - $4,300,000 = $950,000

Therefore, option B will maximize profit with a profit of $950,000. Option A will only yield a profit of $400,000. Thus, the answer is D.

A Company Is Evaluating Which of Two Alternatives Should Be