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Abdul has 8 factories, with different capacities, producing boutique kurtas. In the production process, he incurs raw material cost, selling cost (for packaging and transportation) and labour cost. These costs per kurta vary across factories. In all these factories, a worker takes 2 hours to produce a kurta. Profit per kurta is calculated by deducting raw material cost, selling cost and labour cost from the selling price (Profit = selling price - raw materials cost - selling cost - labour cost). Any other cost can be ignored.
Abdul has introduced a new technology in all his factories. As a result, a worker needs just 1.5 hours to produce a kurta. If raw materials cost and selling cost remain the same, which of the factories listed in the options below will yield the highest profit per kurta?
Profit = selling price - raw materials cost - selling cost - labor cost
Hence, raw materials cost = selling price - profit - selling cost - labor cost
Raw materials cost per Kurta
for factory 2, 5300-800-45-400*2 ....(1)
After technology is introduced, a worker takes 1.5 hour to produce a kurta.
Labor cost per Kurta = 1.5 * (Labor cost/ hour)
New Profit = selling price - raw materials cost - selling cost - new labor cost
Profit per kurta
for factory 2 = 5300-(5300-800-45-400*2)-45-400*1.5 = 800 + 400*0.5 = Original Profit per kurta + 0.5*Labour cost per hour
= 1000
Similarly,
for factory 3, 900+550*0.5 = 1175
for factory 4, 800+450*0.5 = 1025
for factory 5, 600+600*0.5 = 900
for factory 6, 875+400*0.5 = 1075
Factory 3 will yield highest profit.
