At the end of 2018, Diatomic Company implemented a new labor process and redesigned its product with the expectation that input usage efficiency would increase. Now, at the end of 2019, the president of the company wants an assessment of the changes on the company's productivity. The data needed for the assessment are as follows: $\begin{array}{lrr}&2019&2018\
\text { Output } & 45,000 & 54,000 \
\text { Output prices } & \$ 10 & \$ 10 \
\text { Materials (lbs.) } & 22,500 & 22,950 \
\text { Materials unit price } & \$ 3 & \$4 \
\text { Labor (hrs.) } & 18,000 & 16,875 \
\text { Labor rate per hour } & \$ 5 & \$ 5 \
\text { Power (kwh) } & 11,250 & 14,625 \
\text { Price per kwh } & \$ 2 & \$ 3
\end{array}$
What is the total change in profits from 2018 to 2019?
A)$319,950
B)$270,000
C)$90,000
D)$49,950

Question

Quizplus · Accepted Answer

To calculate the total change in profits from 2018 to 2019, we need to calculate the profits for each year and then find the difference. Profits are calculated as total revenue minus total costs. For 2018:- Revenue = Output * Output prices = 54,000 * $10 = $540,000- Materials cost = Materials (lbs.) * Materials unit price = 22,950 * $4 = $91,800- Labor cost = Labor (hrs.) * Labor rate per hour = 16,875 * $5 = $84,375- Power cost = Power (kwh) * Price per kwh = 14,625 * $3 = $43,875- Total costs = Materials cost + Labor cost + Power cost = $91,800 + $84,375 + $43,875 = $220,050- Profit for 2018 = Revenue - Total costs = $540,000 - $220,050 = $319,950For 2019:- Revenue = Output * Output prices = 45,000 * $10 = $450,000- Materials cost = Materials (lbs.) * Materials unit price = 22,500 * $3 = $67,500- Labor cost = Labor (hrs.) * Labor rate per hour = 18,000 * $5 = $90,000- Power cost = Power (kwh) * Price per kwh = 11,250 * $2 = $22,500- Total costs = Materials cost + Labor cost + Power cost = $67,500 + $90,000 + $22,500 = $180,000- Profit for 2019 = Revenue - Total costs = $450,000 - $180,000 = $270,000Change in profits = Profit for 2019 - Profit for 2018 = $270,000 - $319,950 = -$49,950.Therefore, the total change in profits from 2018 to 2019 is a decrease of $49,950.

At the End of 2018, Diatomic Company Implemented a New