Type your question here The following diagram shows the flow process, raw materi
ID: 471045 • Letter: T
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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 arc shown in cost per unit of product. The market will take all that can be produced. Assuming that sales personnel arc 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?Explanation / Answer
Cost price for A= $40
Time taken to produce A= 6 mins
Profit for A= S.P-C.P= $50-$40= $10
Profit per minute for A= $10/6 mins= $1.6666/min
Cost price for B= $45
Time taken to produce B= 13 mins
Profit for B= S.P-C.P= $60-$45= $15
Profit per minute for B= $15/13 mins= $1.154/min
Cost price for C= $60
Time taken to produce C= 13 mins
Profit for C= S.P-C.P= $70-$60= $10
Profit per minute for C= $10/13 mins= $0.769/min
a) On a commission basis, Product C must be sold.
b) To maximise gross profit per unit, product B must be sold since it has highest profit per unit, i.e., $15.
c) To maximise total profit, product A must be sold since it has the highest profit per minute.
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