A product is currently made in a process-focused shop, where fixed cost are $8,000 per year and variable cost is $40 per unit. The firm currently sells 200 units of the product at $200 per unit. A manager is considering a repetitive focus to lower cost and lower prices, thus raising demand. The costs of this proposed shop are fixed costs = $24,000 per year and variable costs = $10 per unit. If a price of $80 will allow 400 units to be sold, what profit or loss can this proposed new process expect? Do you anticipate the manager will want to change the process? There can be more than one correct answer
A. Using the process-focused method, profits are $24,000
B. Switching to the repetitive focus will reduce revenues.
C. The total revenues expected under the repetitive focus shop are $32,000
D. The profit expected under the repetitive focus shop would be $4000
E. At these volumes the larger repetitive process is more profitable that the smaller process-focused shop
Revenues from current process = 200*200=40000
Cost from current process = 8000+40*200=16000
Current profits = ...
This post resolves the process focused versus repetitive focus issues.