Question
Two different manufacturing plants, BP Manufacturing and AD Manufacturing, reported the same profit of $50,000 for the month of June. Both companies reported sales of
Two different manufacturing plants, BP Manufacturing and AD Manufacturing, reported the same profit of $50,000 for the month of June. Both companies reported sales of $200,000 (20,000 units of sales) and total costs of $150,000 for the month. However, the companies makeup of total costs are different.
BP's total costs include $100,000 of variable costs and $50,000 of fixed costs.
AD's total costs include $40,000 of variable costs and $110,000 of fixed costs.
If sales for both companies double, which company will report a higher profit due to these increased sales? Explain your answer.
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