Question

Each week, Wellspring Waters incurs total costs of $38,500 to filter natural spring water. The firm can then bottle the water as is, or it can spend $4,600 to add flavorings prior to bottling. Weekly revenue for plain water would be $92,700, while weekly revenue for the flavored water would be $100,800. Wellspring has just learned that the cost of filtering the spring water will decrease by $1,000 in the week ahead, but the cost of flavorings will increase by $1,200. Given these changes, which of the following statements is accurate A Wellspring should produce flavored water this week and plain water next week. B Wellspring should produce plain water this week and flavored water next week. C Wellspring should produce flavored water both this week and next. D Wellspring should produce plain water both this week and next.

Answer 1

Answer: C

Wellspring should produce flavored water both this week and next.

Explanation: Given that

The total costs to filter natural spring water = $38500

With Weekly revenue for plain water = $92,700

Gain = 92700 - 38500 = $54200

While

The cost of flavorings bottling = $38500 + $4600 = $43100

With Weekly revenue for the flavored water = $100,800

Gain = 100800 - 43100 = $57700

If the cost of filtering the spring water will decrease by $1,000 in the week ahead, then

Normal water gain = $44100

but the cost of flavorings will increase by $1,200.

Flavour water gain = 57700 - 1200

Flavour water gain = $56500

Since flavour water gain is more than normal water, we will conclude that Wellspring should produce flavored water both this week and next.