Question

A company incurs total costs of $8,000 to process Product A. The company can then sell Product A as is for total daily revenue of $22,500. Alternatively, the company can process Product A further into Product Z. The additional costs for making Product Z is $4,200 per day, and the total daily revenues from the finished Product Z is $26,700. Given these figures which statement is accurate? *

Answer 1

Answer:

As the gross profit is the same for both products It is better to choose Product A because Product Z needs further processing a day , so time can also be the constraint.

Explanation:

Process Cost of Product A = $ 8000

Sale of Product A= $ 22,500

Gross Profit For A= $ 14,500

Process Cost of Product Z= $ 8000 + $4200= $ 12,200

Sale of Product Z= $ 26,700

Gross Profit For Z= $ 14,500

The gross profit for both products is same but product Z requires additional day for further processing so it is better to choose Product A.