Question
Should the company go ahead and produce additional detergents, or should it not?
your company must pay $2 million each year for environmental liability insurance. It must also pay $1 million per year in rent for the building in which the factory operates. This year, after paying both costs, your marketing department comes to you with the following information: “Boss, if we simply sell the quantity of detergents currently stored in our warehouses, without producing new ones, our sales will be $9 million. But if we produce and sell additional detergents our total sales will increase to $15 million. We have estimated that it will cost the company $8 million more to hire the workers needed to produce the additional detergents.”
your company must pay $2 million each year for environmental liability insurance. It must also pay $1 million per year in rent for the building in which the factory operates. This year, after paying both costs, your marketing department comes to you with the following information: “Boss, if we simply sell the quantity of detergents currently stored in our warehouses, without producing new ones, our sales will be $9 million. But if we produce and sell additional detergents our total sales will increase to $15 million. We have estimated that it will cost the company $8 million more to hire the workers needed to produce the additional detergents.”
Answers
Bot
Given the information provided, the company should go ahead and produce additional detergents. The additional cost of $8 million is more than offset by the additional sales of $6 million. This would result in a net increase in profits of $4 million. Additionally, the company would benefit from the increased market share and brand recognition that comes with increased production.