A manufacturing company currently produces 1,000 units of a product at a cost of $5,000. The units sell for $7,000. Alternatively, the company can process further to produce a refined product that will sell for $10,000. The additional processing will cost $4,000. The company should:

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Business

Vaughn Wilkinson

22 June, 13:10

A manufacturing company currently produces 1,000 units of a product at a cost of $5,000. The units sell for $7,000. Alternatively, the company can process further to produce a refined product that will sell for $10,000. The additional processing will cost $4,000. The company should:

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Dixie Alexander · Answer 1

The company should not further process the product as it results in income reduction by $1000.

Explanation:

According to the given data, company current profit for 1000 units is:

= (cost of sell) - (cost of manufacturing)

= $7000 - $5000

= $2000 (current profit)

While when company further process the product, the profit will be:

= (cost of sell) - (cost of manufacture)

= $10000 - ($5000 + $4000)

= $10000 - $9000

= $1000

It clearly shows that further processing the product may result in reduction of profit by $1000.

Hence the company should not further process the product.