Question

It costs Glenwood, Inc. $91 per unit to manufacture 1,000 units per month of a product that it can sell for $137 each. Alternatively, Glenwood could process the units further into a more complex product, which would cost an additional $37 per unit. Glenwood could sell the more complex product for $177 each. How would processing the product further affect Glenwood's profit?

Answer 1

Further processing Glenwood's product would increase profit by $3 per unit, leading to an overall monthly profit increase of $3,000, thus making it more profitable for the company.

Step-by-step explanation:

When analyzing how further processing of the product affects Glenwood's profit, we should compare the increase in revenue to the increase in costs associated with the additional processing. Currently, each unit sells for $137, and the cost is $91, resulting in a profit of $137 - $91 = $46 per unit. When processed further, each unit will cost an additional $37 to manufacture, making the total cost per unit $91 + $37 = $128. However, the selling price also increases to $177. So the new profit per unit would be $177 - $128 = $49.

Profit per unit is therefore higher by $49 - $46 = $3 with the additional processing. With 1,000 units produced per month, this would result in an overall increase in profits by $3 * 1,000 = $3,000 per month. Therefore, further processing of the product into a more complex product would be more profitable for Glenwood, Inc.