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August 17, 2024

Calculating the Total Cost of Production for Each Process

A manufacturing company produces widgets and is considering two different production processes for the upcoming year. Process A requires an initial investment of $50,000 in new machinery but has lower operating costs, while Process B requires an initial investment of $30,000 but has higher operating costs. The company expects to sell 10,000 widgets during the year.

Process A has an estimated annual operating cost of $10 per widget, while Process B has an estimated annual operating cost of $15 per widget. Widgets sell for $25 each.

Calculate the following:

The total cost of production for each process.
The total revenue from selling the widgets for each process.
The net profit for each process.
Determine which process would be more profitable for the company based on your calculations.
Please show all your calculations and explain your reasoning.

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