It costs Hickory,Inc.$220 per unit to manufacture 1,000 units per month of a product that it can sell for $290 each.Alternatively,Hickory could sell the units at an earlier stage of processing,which would save $80 per unit.Hickory could sell the simpler product for $200 each.How would selling the simpler product affect Hickory's profit?
A)Profit would increase by $10,000.
B)Profit would increase by $50,000.
C)Profit would decrease by $10,000.
D)Profit would decrease by $50,000.

Question

Quizplus · Accepted Answer

To find out which option would result in the highest profit, we need to calculate the profit for each scenario.

Option 1: Manufacturing 1,000 units per month and selling for $290 each.

Revenue: 1000 x $290 = $290,000

Cost: 1000 x $220 = $220,000

Profit: $290,000 - $220,000 = $70,000

Option 2: Selling at an earlier stage of processing for $200 each.

Savings per unit: $80

Revenue: 1000 x $200 = $200,000

Cost: 1000 x ($220 - $80) = $140,000

Profit: $200,000 - $140,000 = $60,000

Comparing the two options, we see that Option 1 (manufacturing and selling for $290) results in higher profit ($70,000) than Option 2 (selling simpler product for $200, resulting in $60,000 profit). Therefore, if Hickory, Inc. switched to selling the simpler product, their profit would decrease by $10,000 (option C).

It Costs Hickory,Inc