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

Answer:

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

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