Question

It costs Camp, Inc. $48 per unit to manufacture 1,000 units per month of a product...

It costs Camp, Inc. $48 per unit to manufacture 1,000 units per month of a product that it can sell for $75 each. Alternatively, Camp could process the units further into a more complex product, which would cost an additional $41 per unit. Camp could sell the more complex product for $110 each. How would processing the product further affect Camp's profit?

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Answer #1

Solution:

For product having sale price of $75 per unit:

Manufacturing cost = $48*1000 units = $48000

Sales revenue = $75*1000 units = $75000

Therefore, Profit = $75000-$48000 = $27000

​​​​​​For product having sale price of $110 per unit:

Manufacturing Cost = ($48+$41)*1000 units = $89000

Sales revenue = $110*1000 units = $110000

Therefore, Profit = $110000-$89000 = $21000

Hence it is clear from the above calculation that processing the product further will decrease Camp's profit by $6000 ($27000-$21000).

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