Answers
The Budgeted Sales on the current capacity of production would be $ 13,000,000 [200,000 X $65]
Let us consider the proposal on financial considerations first:
Proposal 1 Without using New Material
Total Quantity produced = 200,000
Saleable Quantity = 200000-15000= 185,000
Total Sales [185000 X $65] = 12,025,000
Less: Total Cost [200000 X $25] = 5,000,000
Gross Profit = 7,025,000
Proposal 2 With New Material
Total Quantity produced = 200,000
Saleable Quantity = 200,000-0 = 200,000
Total Sales [200000 X $65] = 13,000,000
Less: Total Cost [200000 X $29] = 5,800,000
Gross Profit = 7,200,000
After considering both the proposals we can say that the Proposal 2 is viable as per the financial performance is concerned as the Proposal 2 provided Gross profit $175,000 more than Proposal 1
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