The following diagram shows the flow process, raw material costs, and machine pr
ID: 377926 • Letter: T
Question
The following diagram shows the flow process, raw material costs, and machine processing time for three products: A, B, and C. There are three machines (W, X, and Y) used in the production of these products; the times shown are in required minutes of production per unit. Raw material costs are shown in cost per unit of product. The market will take all that can be produced.
Assuming that sales personnel are paid on a commission basis, which product should they sell?
On the basis of maximizing gross profit per unit, which product should be sold?
To maximize total profit for the firm, which product should be sold?
The following diagram shows the flow process, raw material costs, and machine processing time for three products: A, B, and C. There are three machines (W, X, and Y) used in the production of these products; the times shown are in required minutes of production per unit. Raw material costs are shown in cost per unit of product. The market will take all that can be produced.
$65 %70 $60 Selling Price Y 3 min. Y 5 min. X 4 min. $10 $10 $10 W 2 min. X 2 min. Y 4 min. $20 $15 $20 W 6 min. W 5 min. X 1 min. $15 $30 $10Explanation / Answer
(a) If the salesperson is provided commission based salary then selling Product C is profitable. Because for example, salesperson gets 10 % of total sales for selling the product a, b, c he gets 600, 650, 700$ respectively. Clearly, it is evident that selling Product C is profitable.
(b) On the basis of maximizing gross profit per unit, Product A should be sold.( for example consider for every 78 min Product A makes profit of 25 x 13 $= 325$ compare to 20 x 7$= 140$, 10 x 7= 70 $ product b and c respectively)
(c) Product A should be sold.
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