Final answer:
The best production method for Carlton company is Method 1, with the lowest total cost of $9,000 initially and $14,000 when the cost of labor rises to $200/unit.
Step-by-step explanation:
When assessing the best production method for Carlton company, considering the given costs for labor and capital, one must calculate the total cost for each production method. At a labor cost of $100/unit and capital cost of $400/unit, the costs for each method are as follows:
- Method 1: (50 units of labor × $100) + (10 units of capital × $400) = $5,000 + $4,000 = $9,000
- Method 2: (20 units of labor × $100) + (40 units of capital × $400) = $2,000 + $16,000 = $18,000
- Method 3: (10 units of labor × $100) + (70 units of capital × $400) = $1,000 + $28,000 = $29,000
Under these cost conditions, Method 1 has the lowest total cost and is therefore the best production method.
If the cost of labor rises to $200/unit, the costs for each method will be:
- Method 1: (50 units of labor × $200) + (10 units of capital × $400) = $10,000 + $4,000 = $14,000
- Method 2: (20 units of labor × $200) + (40 units of capital × $400) = $4,000 + $16,000 = $20,000
- Method 3: (10 units of labor × $200) + (70 units of capital × $400) = $2,000 + $28,000 = $30,000
With the increased labor cost, Method 1 still maintains the lowest total cost, indicating it remains the best production method even with the cost change.