Problem

EnzymesTwo genetically engineered enzymes are produced simultaneously from a series of che...

Enzymes

Two genetically engineered enzymes are produced simultaneously from a series of chemical and biological processes: Q enzyme and Y enzyme. The cost per batch of Q and Y enzymes is $200,000, resulting in 300 grams of Q and 200 grams of Y. Before Q and Y can be sold, they must be processed further at costs of $100 and $150 per gram, respectively. Each batch requires one month of processing time and only one batch per month is produced.

The monthly demand for Q and Y depends on the price charged. The following table summarizes the various price-quantity combinations.

Quantity Sold

Price per Gram of Q

Price per Gram of Y

50

$1,200

$750

100

1,100

550

150

1,000

350

200

900

150

250

800

n.a.

300

700

n.a.

In the following analysis, the optimum price of Q is $900 per gram and the optimum price of Y is $750 per gram.

Quantity Sold

Price per Q

Revenue ofQ

Total Cost of Q*

Total Profit

Price per Y

Revenue from Y

Total cost of Y

Total Profit

50

$1,200

$60,000

$25,000

$35,000

$750

$37,500

$27,500

$10,000

100

1,100

110,000

50,000

60,000

550

55,000

55,000

0

150

1,000

150,000

75,000

75,000

350

52,500

82,500

(30,000)

200

900

180,000

100,000

80,000

150

30,000

110,000

(80,000)

250

800

200,000

125,000

75,000

n.a.

 

 

 

300

700

210,000

150,000

60,000

n.a.

 

 

 

*Cost per gram of Q + ($200,000/500) + $100 + $500/gram.

†Cost per gram of Y = ($200,000/500) + $150 + $550/gram.

Required:

a. Critically evaluate the analysis underlying the pricing decisions of $900 for Q and $750 for Y.


b. What should management do if the cost per batch rises to $225,000?

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Solutions For Problems in Chapter 8