I POST THIS QUESTION TO LEARN NOT FOR AN ANSWER, SO PLEASE SHOW STEPS OR FORMULA
ID: 2380591 • Letter: I
Question
I POST THIS QUESTION TO LEARN NOT FOR AN ANSWER, SO PLEASE SHOW STEPS OR FORMULAS OR EQUATIONS USED PLEASE PLEASE PLEASE DO NOT BE VAGUE
Wool Products purchase wool & processes it in to yarn. The spindles of yarn then be sold directly to stores or they can be used by the company Wool Products to make shawls. Each shawl requires one spindle of yarn. Current cost and revenue data for the spindles of yarn and for the shawls are as follows:
Each month 3,000 spindles of yarn are produced that can either be sold outright or processed into shawls.
What is the lowest price WOOL PRODUCTS should be willing to accept for one shawl as long as it can sell spindles of yarn to the outside market for $20 each?
A) $38
B) $50
C) $59
D) $62
If anyone can help further please email me @ mangofoxtrot
(the addreess is @live.com)
Wool Products purchase wool & processes it in to yarn. The spindles of yarn then be sold directly to stores or they can be used by the company Wool Products to make shawls. Each shawl requires one spindle of yarn. Current cost and revenue data for the spindles of yarn and for the shawls are as follows:
Explanation / Answer
Answer: B) $50
Contribution (C) = Selling price (S) - Variable cost (V)
Profit (P) = Contribution (C) - Fixed costs (F)
If one spindle of yarn is processed to make one shawl,
Total variable cost = $16 (spindle) + $24 (shawl) = $40
Total fixed cost = $10 + $25 = $35 - Avoidable fixed cost = $35 - $20 = $15
C = S - V = $62 - $40 = $22
= $59 -$40 = $19
= $50 - $40 = $10
= $38 - $40 = ($2)
Therefore, the lowest selling price would be $50. The contribution equals the fixed cost. No profit in this case.
If spindles alone are produced,
C = S - V = $20 - $16 = $4
In this case also, no profit (P = C - F = $4 - $10 = ($6))
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