Question

The Moore Division of Block C Enterprises manufactures and sells specialty semiconductors. Moore sells 1350 of one of these specialized semiconductors each month at a price of $1200 each. Variable costs amount to $1,000,000, and fixed costs are $400,000. Currently Moore has a defect rate of 6 percent (which are chips returned by customers, scrapped, or replaced). Note that the variable costs include the cost of producing the defective chips. If the defect rate can be reduced to zero, calculate the percent increase in profit associated with producing this semiconductor. **please explain the steps in solving Options: 43.5 44.7 45.1 45.4 45.7 46.1 47.5 51.8

Answer 1

Particulars	Defect @ 6%	Defect @ 0%	Formula
Sales Qty	1,350	1,350	A
Price	1,200	1,200	B
Total Sales	1,620,000	1,620,000	C=A*B
Variable Cost	1,000,000	1,000,000	D
Fixed Cost	400,000	400,000	E
Defect @ 6%	81	-	F=A*6%
Sales of 6%	97,200	-	G=F*B
Profit	122,800	220,000	H=C-D-E-G
% increase in profit		79%

Hence, the profit will increase by 79% if the defect rate becomes 0.