Managers of Pianissimo Corporation are thinking about eliminating one of their products,MoreGlo.MoreGlo sells for $10 per unit.Unit-related costs are $6,batch-related costs are $400 per batch,and 4 batches of MoreGlo have been required each month.Pianissimo spends $4,000 each month to advertise MoreGlo.Rent and insurance on the factory allocated to MoreGlo total $2,000.If Pianissimo is currently producing and selling 1,500 units of MoreGlo each month,it should not eliminate MoreGlo as long as relevant profit is at least
A)$1
B)$400
C)$2,000
D)$4,400

Question

Quizplus · Accepted Answer

To determine if MoreGlo should not be eliminated, we calculate the relevant profit. Selling 1,500 units at $10 each gives $15,000 in revenue. The unit-related costs are $6 per unit, totaling $9,000 for 1,500 units. There are 4 batches each month, with each batch costing $400, totaling $1,600. The advertisement cost is $4,000, and the rent and insurance cost is $2,000. The total costs are $16,600 ($9,000 + $1,600 + $4,000 + $2,000). The relevant profit is the revenue minus these costs, which is -$1,600 ($15,000 - $16,600). However, the question asks for the minimum relevant profit to justify not eliminating MoreGlo, which means as long as the profit is at least $1 positive, it should not be eliminated. Therefore, the correct answer is $1, indicating that as long as MoreGlo generates any positive relevant profit, it should be kept.

Managers of Pianissimo Corporation Are Thinking About Eliminating One of Their