Reference no: EM132564249

Question - Company Gamma produces and sells plain t-shirts but is considering entering the market of coloured t-shirts. The plain t-shirts produced by Company Gamma costs $1 per unit and are sold for $5 per unit. If Company Gamma starts producing and selling coloured t-shirts, the cost is expected to be $1.20 per unit and sold for $6 per unit.

Required -

a. Show whether it is worth processing the plain t-shirts into coloured t-shirts.

b. Company Gamma has found a more efficient way of producing its plain t-shirts, reducing the production costs of plain t-shirts from $1 to $0.50 per unit. How does this increased efficiency affect the decision of whether processing the plain t-shirts into coloured t-shirts?