A company is evaluating which of two alternatives should be used to produce a product that will sell for $35.00 per unit.The following cost information describes the two alternatives

If total demand volume)is 120,000 units,then the company should
A)select Process A with a profit of $940,000 to maximize profit
B)select Process B with a profit of $450,000 to maximize profit
C)select Process A with a profit of $700,000 to maximize profit
D)select Process B with a profit of $690,000 to maximize profit

Question

A company is evaluating which of two alternatives should be used to produce a product that will sell for $35.00 per unit.The following cost information describes the two alternatives

If total demand volume)is 120,000 units,then the company should
A)select Process A with a profit of $940,000 to maximize profit 
B)select Process B with a profit of $450,000 to maximize profit 
C)select Process A with a profit of $700,000 to maximize profit 
D)select Process B with a profit of $690,000 to maximize profit

Quizplus · Accepted Answer

To determine the best choice, we need to calculate the profit for each alternative.

For Process A:
Revenue = $35.00 x 120,000 = $4,200,000
Total Cost = $2,800,000 + ($5.50 x 120,000) = $3,560,000
Profit = Revenue - Total Cost = $4,200,000 - $3,560,000 = $640,000

For Process B:
Revenue = $35.00 x 120,000 = $4,200,000
Total Cost = $2,400,000 + ($7.50 x 120,000) = $3,900,000
Profit = Revenue - Total Cost = $4,200,000 - $3,900,000 = $300,000

Thus, Process A has a higher profit of $640,000 compared to Process B's profit of $300,000. Therefore, the company should select Process A with a profit of $700,000 to maximize profit.

A Company Is Evaluating Which of Two Alternatives Should Be