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Decision making case differential profit analysis Breckitt Inc provides water treatment

Question

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?

Business