Question

National Chemical Company manufactures a chemical compound that is sold for $52 per gallon. A new variant of the chemical has been discovered, and if the basic compound were processed into the new variant, the selling price would be $73 per gallon. National expects the market for the new compound variant to be 8,800 gallons initially and determines that processing costs to refine the basic compound into the new variant would be $132,000. Required: a. What would be the effect on total profit if National produces the new compound variant

Answer 1

Answer: $52,800

Explanation:

The effect on profit is:

= (Difference in selling price - Incremental cost per unit of producing the new variant) * Number of gallons of new gallons to be produced

= ((73 - 52) - (132,000 / 8,800) ) * 8,800

= ( 21 - 15) * 8,800

= $52,800

Profit is positive so they should produce the new variant.