Question

Does reliance on historical cost rather than opportunity cost lead to a poor decision?  Consider this example. A bakery has an inventory of wheat that was purchased at $6 per bushel but now is worth $10 per bushel.  The firm is considering using this wheat to make a new whole wheat bread that will be sold to stores for $10 per unit (six loaves). The selling price of the finished product remains the same when using either method. Suppose that one bushel of wheat is required to make each unit of this new type of bread while $3.00 of labor, energy, and other costs per unit of output are also incurred.

Choose the correct eight required items:

Price of finished product. Historical approach	Answer 1Choose...3,6, 1,-3,1,0
Price of finished product. Economic approach	Answer 2Choose...3,6,1,-3,1,0
Cost of wheat input. Historical approach	Answer 3Choose...3,6,1,-3,1,0
Cost of wheat input. Economic approach	Answer 4Choose...3,6,1,-3,1,0
Labor, energy, other. Historical approach	Answer 5Choose...3,6,1,-3,1,0
Labor, energy, other. Economic approach	Answer 6Choose...3,6,1,-3,1,0
Net profit per unit. Historical approach	Answer 7Choose...3,6,1,-3,1,0
Net profit per unit. Economic approach	Answer 8Choose...3,6,1,-3,1,0

Answer 1

SOLUTION -

PER UNIT HISTORICAL APPROACH ECONOMIC APPROACH

PRICE OF FINISHED PRODUCT 10    10

LESS-COST OF WHEAT INPUT 6 10

LESS-LABOR,ENERGY,OTHER 3 3

NET PROFIT PER UNIT 1 (3)

SO,as per historical cost manufacturing in profit form but according to economic approach loss chances are more than profit. so productivity will not be possible.