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(Solved): The following diagram shows the flow process, raw material costs, and machine processing time for t ...
The following diagram shows the flow process, raw material costs, and machine processing time for three products: A, B, and C. There are three machines , and used in the production of these products; the times shown are in required minutes of production per unit. Raw material costs are shown in cost per unit of product. The market will take all that can be produced. a. Assuming that sales personnel are paid on a commission basis, which product should they sell? Product Product B Product A b. On the basis of maximizing gross profit per unit, which product should be sold? Product A Product B Product c. To maximize total profit for the firm, which product should be sold? Product B Product A Product
Expert Answer
Introduction: Given data:Selling Price for Product A = $60.Selling Price for Product B = $50 Selling Price for Product C = $55Total Time required for Product A = 1 + 2 + 3 = 6 mins Total Time required for Product B = 5+ 4+2 = 11 mins Total Time required for Product C = 4+2+3 = 9 minsTotal Cost for Product A = 25+ 15 + 15 = $55 Total Cost for Product B = 10 + 15 + 15 = $40 Total Cost for Product C = 10+20 +20= $50Answer:a)Products A, B, and C are sold by the sales staff, who are paid on a commission basis for each sale. However, the amount of sales commission received depends on the total amount of sales revenue generated by the sales staff. As a result, the sales staff would prefer to sell the products with the highest selling prices in order to receive more sales commission.According to the provided illustration, product A brings in the most money ($60), hence the salespeople here should market product A.b)To get the gross profit per unit for each product, deduct the cost from the selling price. From each of the three products:Product A = $60 - $55 = $5Product B = $50 - $40 = $10Product C = $55 - $50 = $5Here, we could see that Product B gives maximum gross profit per unit, as It has the highest gross profit value of $10,c)Here, I would determine the gross profit per hour basis for all three products,The gross profit per hour for product A = Gross profit / Time in minutes × 60The gross profit per hour for product A =5 / 6 × 60The gross profit per hour for product A = 50The gross profit per hour for product B =Gross profit / Time in minutes × 60The gross profit per hour for product B = 10 / 11 × 60The gross profit per hour for product B = 54.55The gross profit per hour for product C = Gross profit / Time in minutes × 60The gross profit per hour for product C =5 / 9 × 60The gross profit per hour for product C = 33.33Product B maximizes total profit for the firm, so it should be sold.