Accounting for Decision Making and Control 8th Edition by Jerold Zimmerman

Exercise 13

Enzymes
Two genetically engineered enzymes are produced simultaneously from a series of chemical and biological processes: Q enzyme and Y enzyme. The cost per batch of Q and Y enzymes is $200,000, resulting in 300 grams of Q and 200 grams of Y. Before Q and Y can be sold, they must be processed further at costs of $100 and $150 per gram, respectively. Each batch requires one month of processing time and only one batch per month is produced.
The monthly demand for Q and Y depends on the price charged. The following table summarizes the various price-quantity combinations.
In the following analysis, the optimum price of Q is $900 per gram and the optimum price of Y is $750 per gram.
*Cost per gram of Q + ($200,000/500) + $100 + $500/gram.
†Cost per gram of Y = ($200,000/500) + $150 + $550/gram.
Required:
a. Critically evaluate the analysis underlying the pricing decisions of $900 for Q and $750 for Y.
b. What should management do if the cost per batch rises to $225,000?