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Question - Any one of three different product lines can be produced by Steiner Mills, Inc., with the present equipment in one of the divisions. The annual depreciation of the equipment is P6,400; and the annual cost to operate the equipment, regardless of product line manufactured is P 4,600.
Product A is expected to yield sales revenue of P71,000 a year with increased costs of production amounting to P42,000. Product B should yield sales revenue of P46,000 a year with increased costs of P15,000. Product C should yield sales revenue of P117,000 with increased costs of P96,000.
Required -
1. Which of the three product lines seems to offer the best profit potential based on the information given. Show computations.
2. What is the best product line and what is the opportunity cost of selecting only that best product line.
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