Final answer:
The best production method with labor costing $100 per unit is Method 1, costing $9000. Even when labor costs rise to $200 per unit, Method 1 remains the most cost-effective at $14000. Method selection involves examining both labor and capital costs through cost analysis.
Step-by-step explanation:
To determine the best production method based on cost estimation using the details provided, a thorough cost analysis for each of the methods is necessary. Initially, the cost of labor is $100 per unit and the cost of capital is $400 per unit. The total costs for each method can be calculated as follows:
- 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
Given these calculations, Method 1 is the best production method with the lowest total cost of $9000.
If the cost of labor increases to $200 per unit, the total costs will now 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 labor cost, Method 1 still remains the best production method at $14000, which is the lowest total cost among the three. Choosing the best production method involves a combination of cost analysis and understanding the balance between labor and capital costs.