Managers of Prestissimo Corporation are thinking about eliminating one of their products,EasyGlo.EasyGlo sells for $8 per unit.Unit-related costs are $5,batch-related costs are $300 per batch,and 3 batches of EasyGlo have been required each month.Prestissimo spends $3,000 each month to advertise EasyGlo.Rent and insurance on the factory allocated to EasyGlo total $4,000.If Prestissimo is currently producing and selling 1,500 units of EasyGlo each month,what is the relevant profit for the product-elimination decision?
A)$4,500
B)$3,600
C)$ 600
D)($3,400)

Question

Quizplus · Accepted Answer

The relevant profit for the product-elimination decision is calculated by considering the revenues and the variable or avoidable costs associated with EasyGlo. The fixed costs (rent, insurance, and advertising) are not relevant since they are likely to remain unchanged whether the product is eliminated or not. The calculation is as follows: Revenue from EasyGlo = $8 * 1,500 units = $12,000. Variable costs = Unit-related costs ($5 * 1,500) + Batch-related costs ($300 * 3 batches) = $7,500 + $900 = $8,400. Relevant profit = Revenue - Variable costs = $12,000 - $8,400 = $3,600. However, considering the correct calculation leads to a relevant profit of $600, indicating a mistake in the calculation provided. The correct calculation should account for all relevant costs and revenues specifically associated with producing and selling EasyGlo.

Managers of Prestissimo Corporation Are Thinking About Eliminating One of Their