Question

The costs and revenues associated with two alternatives are listed below:

Alternative 1 Alternative 2
Projected revenue $ 100,000 $ 125,000
Unit-level costs 20,000 30,000
Batch-level costs 20,000 25,000
Product-level costs 15,000 15,000
Facility-level costs 10,000 10,000

Which alternative should be selected based on this information?

A. Alternative 2 because it has a higher profit
B. Alternative 1 because it has fewer unit-level costs
C. Alternative 2 because it has the same product-& facility-level costs
D. Alternative 1 because it has a higher profit.

Answer 1

Alternative 2 should be selected because it results in a higher profit of $45,000 compared to the $35,000 profit from Alternative 1, despite having the same product- and facility-level costs.

Step-by-step explanation:

When comparing Alternative 1 and Alternative 2 based on their costs and revenues, we must calculate the total costs and profits for each alternative to determine which one is the better choice. For Alternative 1, the total costs are the sum of unit-level costs ($20,000), batch-level costs ($20,000), product-level costs ($15,000), and facility-level costs ($10,000), which equals $65,000. Subtracting this from the projected revenue of $100,000, we get a profit of $35,000. For Alternative 2, the total costs are unit-level costs ($30,000) + batch-level costs ($25,000) + product-level costs ($15,000) + facility-level costs ($10,000), which equals $80,000. Subtracting this from the projected revenue of $125,000, we get a profit of $45,000. Therefore, Alternative 2 should be selected because it has a higher profit than Alternative 1.

Answer 2

The correct option is A,alternative 2 because it has a higher profit

Step-by-step explanation:

The profit analysis of both alternatives is done below:

Alternative 1 Alternative 2

Projected revenue $100,000 $125,000

Costs:

unit level costs $20,000 $30,000

Batch-level costs $20,000 $25,000

Product-level costs $15,000 $15,000

facility-level costs $10,000 $10,000

total costs $65,000 $80,000

Profit(revenue-total costs) $35,000 $45,000

The correct answer is option A,as option 2 has a higher profit of $45,000 compared to alternative 1 of $35,000