A company incurred costs of $8,000 in producing 1,000 gallons of Apex. Apex can be sold...
A company incurred costs of $8,000 in producing 1,000 gallons of Apex. Apex can be sold for $24 per gallon now or processed further at a cost of $14,000 and then sold for $40 per gallon. Which one of the following actions would be most advantageous to the company and what is the economic effect?
| a. |
Sell Apex now; the company would be $2,000 better off |
|
| b. |
Process Apex further; the company would be $16,000 better off |
|
| c. |
Sell Apex now; the company would be $10,000 better off. |
|
| d. |
Process Apex further; the company would be $2,000 better off. |
Homework Answers
Solution:
Profits from Sell Apex now = 1000 *$24 = $24,000
Profits from process Apex further = (1000*$40) - $14000 = $26,000
Advantage if "Process Apex further" = $26000 - $24000 = $2,000
Therefore, Process Apex further; the company would be $2,000 better off.
Hence. option "d" is correct.
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