Question

1. A food processor is considering the development of a new line of product. Depending on the quality of raw material, he can expect äifferent yields process-wise, and the quality of the final products will also alternatives, and produced them in a pilot scale. The marketing department has used those samples for surveys to estimate potential sales and pricing strategies. The three alternatives would use existing equipment, but different process conditions and specifications, and they are summarized as follows. Indicate which alternative seems to be the best according to the estimated data if the objective is to maximize total profit per year. (10 pts) change considerably. The product development department has identified three Alternatives 5085 007007 lbs of raw material A per unit of product lbs of raw material B per unit of product lbs of raw material C per unit of product Other processing costs (S unit product) Expected wholesale price (S unit product) Projected volume of sales (units of product) 019 0.180.26 0.140.120 0.17 0.23 0.951.05 1.25 0.16 0.24 1,000,000 1.250,000 800,000 Cost of raw material A $3.45/ lb Cost of raw material B $1.07? lb Cost of raw material C $1.88/ lb 2(a). The total cost of a building (TC) is given by TC (200+80x+2x2)A Where x- Number of floors

Answer 1

ans:-

The profit from Alternative 1 : -

Profit = Total Revenue - Total cost

Total Revenue = 1,000,000 x 0.95

Total Revenue = $ 950,000

Total cost = Cost of material A + Cost of material B + Cost of material C + Other processing costs

Total cost = 1,000,000 x 0.05 x $ 3.45+ 1,000,000 x 0.19 x $ 1.07+ 1,000,000 x 0.14 x $ 1.88 + 1,000,000 x $ 0.16

Total cost = 799,000

Profit = $ 950,000 - $ 799,000

Profit = $ 151,000

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Profit from Alternative B

Total Revenue = 1,250,000 x $ 1.05

Total Revenue = $ 1,312,500

Total cost = 1,250,000 x 0.07 x 3.45 + 1,250,000 x 0.18 x 1.07 + 1,250,000 x 0.12 x 1.88 + 1,250,000 x 0.24

Total cost = $ 1,124,625

Profit = $ 1,312,500 - $ 1,124,625

Profit = $ 187,875

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Profit from alternative C

Total revenue = 800,000 x 1.25

Total revenue = 1,000,000

Total cost = 800,000 x 0.075 x 3.45 + 800,000 x 0.26 x 1.07+ 800,000 x 0.17 x 1.88 + 800,000 x 0.23

Total cost = $ 869,240

Profit = 1,000,000 - $ 869,240

profit = $ 130,760

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Alternative 2 is to be choosen because it has a higher profit when compared to other alternatives .

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