Clary Corporation sells 2,000 units of product Y per day at $2 per unit. Clary has the option of processing the product further for additional costs of $1000 per day to produce Product Z, which sells for $2.90 per unit. If Clary processes product Y further into Product Z, the company's net income will:Select one:a. decrease by $1000 per dayb. increase by $800 per dayc. Increase by $1,800 per dayd. decrease by $800 per daqy

Question

Elvis Rubio

Business

3 July, 17:01

Clary Corporation sells 2,000 units of product Y per day at $2 per unit. Clary has the option of processing the product further for additional costs of $1000 per day to produce Product Z, which sells for $2.90 per unit. If Clary processes product Y further into Product Z, the company's net income will:Select one:a. decrease by $1000 per dayb. increase by $800 per dayc. Increase by $1,800 per dayd. decrease by $800 per daqy

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Answers (2)

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Isabelle Bauer · Answer 1

The correct option is B, the net income will increase by $800 per day.

Explanation:

The increase or decrease in net income of Clary Corporation can be looking at it from incremental cost/benefit perspective.

In order to arrive at the correct option, the increment in sales as a result of further processing is calculated and the increment in cost is deducted from it

Increment in sales ($2.9-$2) * 2000 $1800

Increment in costs ($1000)

Increase in net income $800

Option A is wrong because as it only considered the increase in cost.

Option C is wrong as it only considered in revenue

Chewie · Answer 2

The correct answer is:

increase by $800 per day (b.)

Explanation:

The question is asking us to compare the incomes gotten by Clary if she sells 2000 units of the product as Y, or as Z and make an inference from the options given.

First of all, we will calculate the total income gotten when the product is sold as Y. This is calculated as follows;

Product as Y;

1 unit = $2

∴ 2,000 units = $4,000

Next let us calculate the income gotten from the product as Z;

Product as Z;

1 unit = $2.90

2,000 units = 2.90 * 2,000 = $5,800.

We are also told that in order to transform the product Y to Z, an additional cost of $1,000 was incurred, so to get the net income from Z, we will subtract this amount from the total income of Z;

Net income from Z = 5,800 - 1,000 = $4,800

Comparing the two incomes from Y and Z, we see that selling the product as Y brings an income of $4,000, while as Z, brings an income of $4,800, and the difference is $4,800 - $4,000 = $800. Since Clary processes the product from Y further to Z, the net income increase by $800 per day (b.)