Reference no: EM132746744

Question - One litre of X sells for $5. Fixed costs are $2,000 per week allocated based on total processing capacity of 80 hours. There are no capacity constraints - if this processing capacity was not used for product X (or for Y and/or Z as described below) the capacity would be idle and fixed costs unavoidable.

Alternatively the company could process X further and produce 1,000 litres of Yon (Y). The additional costs would be $3.80 per litre of Y. The selling price of Y would be $12 per litre. The additional processing would take 5 hours.

Yon could be processed further to obtain 500 litres of Zenta (Z). The additional costs would be $2.60 per litre of Z. The selling price of Z would be $30 per litre. The additional processing takes 10 hours.

There is high demand for any of the chemicals and all that is produced can be sold.

Required -

1) What is the relevant cost per batch to produce Y and Z?

2) What is the incremental benefit (loss) per batch to sell Y or Z? (input the amount as positive value for a benefit and a negative value for a loss)

3) What is the incremental profit per processing hour for each production process for X, Y and Z?