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30 March, 13:56

Clary Corporation sells 2,000 units of product Y per day at $2 per unit. Clary has the option of processing the product further for additional costs of $1000 per day to produce Product Z, which sells for $2.90 per unit. If Clary processes product Y further into Product Z, the company's net income will:Select one:a. decrease by $1000 per dayb. increase by $800 per dayc. Increase by $1,800 per dayd. decrease by $800 per daqy

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Answers (2)
  1. 30 March, 14:05
    0
    The correct answer is:

    increase by $800 per day (b.)

    Explanation:

    The question is asking us to compare the incomes gotten by Clary if she sells 2000 units of the product as Y, or as Z and make an inference from the options given.

    First of all, we will calculate the total income gotten when the product is sold as Y. This is calculated as follows;

    Product as Y;

    1 unit = $2

    ∴ 2,000 units = $4,000

    Next let us calculate the income gotten from the product as Z;

    Product as Z;

    1 unit = $2.90

    2,000 units = 2.90 * 2,000 = $5,800.

    We are also told that in order to transform the product Y to Z, an additional cost of $1,000 was incurred, so to get the net income from Z, we will subtract this amount from the total income of Z;

    Net income from Z = 5,800 - 1,000 = $4,800

    Comparing the two incomes from Y and Z, we see that selling the product as Y brings an income of $4,000, while as Z, brings an income of $4,800, and the difference is $4,800 - $4,000 = $800. Since Clary processes the product from Y further to Z, the net income increase by $800 per day (b.)
  2. 30 March, 17:19
    0
    The correct option is B, the net income will increase by $800 per day.

    Explanation:

    The increase or decrease in net income of Clary Corporation can be looking at it from incremental cost/benefit perspective.

    In order to arrive at the correct option, the increment in sales as a result of further processing is calculated and the increment in cost is deducted from it

    Increment in sales ($2.9-$2) * 2000 $1800

    Increment in costs ($1000)

    Increase in net income $800

    Option A is wrong because as it only considered the increase in cost.

    Option C is wrong as it only considered in revenue
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