Final answer:
The best production method considering the initial costs of labor and capital is Method 1, with a total cost of $9000. Even if the cost of labor increases to $200/unit, Method 1 remains the best option as its total cost increases to $14000, which is still the lowest compared to the other methods.
Step-by-step explanation:
To determine the best production method MRP gross requirements for Item A, considering different costs for labor and capital, we will calculate the total cost for each method based on the given prices.
- Method 1: (50 units of labor × $100/unit) + (10 units of capital × $400/unit) = $5000 + $4000 = $9000
- Method 2: (20 units of labor × $100/unit) + (40 units of capital × $400/unit) = $2000 + $16000 = $18000
- Method 3: (10 units of labor × $100/unit) + (70 units of capital × $400/unit) = $1000 + $28000 = $29000
Therefore, Method 1 is the best production method initially, as it has the lowest total cost of $9000.
However, if the cost of labor rises to $200/unit, the total costs will be:
- Method 1: (50 units of labor × $200/unit) + (10 units of capital × $400/unit) = $10000 + $4000 = $14000
- Method 2: (20 units of labor × $200/unit) + (40 units of capital × $400/unit) = $4000 + $16000 = $20000
- Method 3: (10 units of labor × $200/unit) + (70 units of capital × $400/unit) = $2000 + $28000 = $30000
With the increased cost of labor, Method 1 remains the best option as its total cost is still the lowest, now at $14000.