Question
Can someone please take the time to explain this problem in easy to understand language step by step. Two genetically engineered enzymes are produced simultaneously
Can someone please take the time to explain this problem in easy to understand language step by step.
Two genetically engineered enzymes are produced simultaneously from a series of chemical and biological processes: Q enzyme and Y enzyme. The cost per batch of Q and Y enzymes is $200,000, resulting in 300 grams of Q and 200 grams of Y. Before Q and Y can be sold, they must be processed further at costs of $100 and $150 per gram, respectively. Each batch requires one month of processing time and only one batch per month is produced.
The monthly demand for Q and Y depends on the price charged. The following table summarizes the various price-quantity combinations.
Quantity Sold | Price per Gram of Q | Price per Gram of Y |
50 | $1,200 | $750 |
100 | 1,100 | 550 |
150 | 1,000 | 350 |
200 | 900 | 150 |
250 | 800 | n.a. |
300 | 700 | n.a. |
In the following analysis, the optimum price of Q is $900 per gram and the optimum price of Y is $750 per gram.
Quantity Sold | Price per Q | Revenue of Q | Total Cost of Q* | Total Profit | Price per Y | Revenue from Y | Total cost of Y | Total Profit |
50 | $1,200 | $ 60,000 | $ 25,000 | $35,000 | $750 | $37,500 | $ 27,500 | $10,000 |
100 | 1,100 | 110,000 | 50,000 | 60,000 | 550 | 55,000 | 55,000 | 0 |
150 | 1,000 | 150,000 | 75,000 | 75,000 | 350 | 52,500 | 82,500 | (30,000) |
200 | 900 | 180,000 | 100,000 | 80,000 | 150 | 30,000 | 110,000 | (80,000) |
250 | 800 | 200,000 | 125,000 | 75,000 | n.a. |
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300 | 700 | 210,000 | 150,000 | 60,000 | n.a. |
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a. | Critically evaluate the analysis underlying the pricing decisions of $900 for Q and $750 for Y. |
b. | What should management do if the cost per batch rises to $225,000? |
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