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# Answer to Question #143880 in Finance for Mr. Dinesh Pal Singh

Question #143880
7. Tempo Electronics, Inc., has an inventory of 5,000 unique electronic chip originally purchased at $2.50 each; their market value is now$ 5 each. The production department has proposed to use these by putting each one together with $6 worth of labor and other materials to produce a wristwatch that would be sold for$10. Should that proposal be implemented? Explain from the viewpoints of economic profit and opportunity costs.
1
2020-11-17T07:28:36-0500

Option one

sell 5000 chips at "\\$5= 5\\times5000=\\$25,000"

cost to Tempo Electronics ="2.50\\times5000=\\$12,500" "profit = 25,000- 12,500 = \\$12,500"

option two

sell 5000 units at "\\$10 =10\\times5000 = \\$50,000"

cost of manufacture ("6.0 + 2.50 = 8.50) = 5000\\times8.50 = \\$42,500" "profit = 50,000-42,500 = \\$7,500"

As profit is greater when sold, so option one is more profitable and should be followed by the firm.

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