At the End of 2018, Diatomic Company Implemented a New

question 90

Multiple Choice

At the end of 2018, Diatomic Company implemented a new labor process and redesigned its product with the expectation that input usage efficiency would increase. Now, at the end of 2019, the president of the company wants an assessment of the changes on the company's productivity. The data needed for the assessment are as follows: $\begin{array}{lrr}&2019&2018\\\text { Output } & 45,000 & 54,000 \\\text { Output prices } & \$ 10 & \$ 10 \\\text { Materials (lbs.) } & 22,500 & 22,950 \\\text { Materials unit price } & \$ 3 & \$4 \\\text { Labor (hrs.) } & 18,000 & 16,875 \\\text { Labor rate per hour } & \$ 5 & \$ 5 \\\text { Power (kwh) } & 11,250 & 14,625 \\\text { Price per kwh } & \$ 2 & \$ 3\end{array}$
By how much did profit change as a result of profitability changes in power?

• A)$27,000 decrease
• B)$10,125 decrease
• C)$3,375 increase
• D)$3,375 decrease

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Definitions:

Profit

Profit is the financial gain obtained when the amount earned from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Operating Income

Income generated from a company's regular business operations, excluding one-time events and expenses.

Variable Cost

Costs that change in proportion to the level of activity or volume of goods produced.

Fixed Costs

Costs that do not change with the volume of production, such as rent, salaries, or insurance.