Decision making case, differential profit analysis:
Breckitt Inc. provides water treatment
supplies to cities and counties. The product development dept. has developed two potential new products: one is a new organic chemical compound that will bind with heavy metals and then be filtered out of the water, and the other is a plant-based filter that will actually filter out the metals. The products are similar enough to be produced on existing equipment, but the company would not be able to produce both of them. Breckitt projects the following revenue and cost information for each of the products:
Organic chemical compound product:
Sales Price: $2,450/container
Total sales in Year 1: 15,000 containers
Direct materials: $230/container
Direct Labor: $15/hour, each container requires 12 hours of direct labor
Variable overhead allocation: $50/direct labor hour
Plant based filter product:
Sales Price: $2,600/filter
Total sales in Year 1: 25,000 filters
Direct materials: $150/filter Direct Labor: $15/hour, each filter requires 25 hours of direct labor
Variable overhead allocation: $50/direct labor hour
What would be the net difference in income of producing the filter instead of the compound?
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