Question
n a pharmaceutical company, it takes 90 hours of machine time to produce an order of Hypertension drug. The annual capacity is 9,000 hours. The
n a pharmaceutical company, it takes 90 hours of machine time to produce an order of Hypertension drug. The annual capacity is 9,000 hours. The customer is concerned about the time it takes for the orders to be delivered. Suppose that the company expects to receive 70 orders in the coming year. The company is recently approached by another hospital with 50 orders of a diabetes drug. Each new order will take 36 hours of machine time. Assuming the demand for the Hypertension drug will not be affected by serving the second customer. The customer for Hypertension drug is extremely unhappy about the increase in waiting time and is likely to lower the price from $33,000 to 30,000, the company is debating whether it should accept the second order. What is the increase in operating income if the company decides to manufacture the second drug as well (Assume that the new drug will be sold at $20,000 per order and both drugs will have variable costs of $ 15,000 for each order)?
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