Question

New age makeup produces facial moisturizer. Each bottle of moisturizer costs 10 to produce and can be sold for13. The bottles can be sold as is, or processed further into sunscreen at an additional cost of 14 each. New age makeup could sell the sunscreen for23 per bottle. What decision should the company make and why?

Answer 1

New Age Makeup should sell the facial moisturizer as is, as it generates a profit of $3 per bottle, while processing it into sunscreen would result in a loss of $1 per bottle.

To determine whether New Age Makeup should sell its facial moisturizer as is or process it further into sunscreen, we need to compare the costs and revenues associated with each option.

Option 1: Selling the moisturizer as is

Cost per bottle: $10

Selling price per bottle: $13

Option 2: Processing the moisturizer into sunscreen

Additional cost per bottle: $14

Selling price per bottle of sunscreen: $23

To make the decision, we need to calculate the profit for each option.

Option 1 Profit = Selling price - Cost per bottle = $13 - $10 = $3

Option 2 Profit = Selling price of sunscreen - Cost per bottle - Additional cost per bottle = $23 - $10 - $14 = -$1

Based on the calculations, the company should choose Option 1 and sell the facial moisturizer as is because it generates a profit of $3 per bottle, while processing it into sunscreen results in a loss of $1 per bottle.