Magical Mystery Company makes three different products which most children find appealing. The following unit price and cost information is available for the three products:
a. Assuming that Magical Mystery Company can sell all of a particular product that it can produce. On which product should it focus production to maximize its profitability? Would it make sense for Magical Mystery Company to produce only this product and stop producing the other two? Explain your answer. Show computations.
b. Right after these selling prices and variable cost amounts were specified, there was a significant increase in the price of one of the materials that affected both the cost of the Wizard Wand and the Spell Book. If the unit variable costs for each of the products increased by 30%, on which product should Magical Mystery Company focus on now to maximize operating profit. Show computations.

Question

Magical Mystery Company makes three different products which most children find appealing. The following unit price and cost information is available for the three products:  
a. Assuming that Magical Mystery Company can sell all of a particular product that it can produce. On which product should it focus production to maximize its profitability? Would it make sense for Magical Mystery Company to produce only this product and stop producing the other two? Explain your answer. Show computations.
b. Right after these selling prices and variable cost amounts were specified, there was a significant increase in the price of one of the materials that affected both the cost of the Wizard Wand and the Spell Book. If the unit variable costs for each of the products increased by 30%, on which product should Magical Mystery Company focus on now to maximize operating profit. Show computations.

Quizplus · Accepted Answer

The Answer of Magical Mystery Company makes three different products which most children find appealing. The following unit price and cost information is available for the three products:  
a. Assuming that Magical Mystery Company can sell all of a particular product that it can produce. On which product should it focus production to maximize its profitability? Would it make sense for Magical Mystery Company to produce only this product and stop producing the other two? Explain your answer. Show computations.
b. Right after these selling prices and variable cost amounts were specified, there was a significant increase in the price of one of the materials that affected both the cost of the Wizard Wand and the Spell Book. If the unit variable costs for each of the products increased by 30%, on which product should Magical Mystery Company focus on now to maximize operating profit. Show computations.

Magical Mystery Company Makes Three Different Products Which Most Children