Question

Maxim manufactures a hamster food product called Green Health. Maxim currently has 16,500 bags of Green Health on hand. The variable production costs per bag are $3.10 and total fixed costs are $23,000. The hamster food can be sold as it is for $10.00 per bag or be processed further into Premium Green and Green Deluxe at an additional cost. The additional processing will yield 16,500 bags of Premium Green and 4,300 bags of Green Deluxe, which can be sold for $9 and $7 per bag, respectively. Assuming Maxim further processes Green Health further into Premium Green and Green Deluxe, revenue from the two products would be:

Answer 1

$104,450

Step-by-step explanation:

Given:

The number of bags of Green Health on hand = 16,500

variable production costs per bag = $3.10

total fixed costs = $23,000

Selling cost of the Green Health = $10.00

The additional processing will yield,

bags of Premium Green = 16,500

bags of Green Deluxe = 4,300

Selling cost of the Premium green = $9

Selling cost of the Green Deluxe = $7

Now,

the total revenue from selling the after additional processing

= ( total revenue from selling premium green) + ( total revenue from selling Green deluxe)

= ( 16,500 × $9 ) + ( 4,300 + $7 )

= $148,500 + $30,100

= $178,600

and,

the total revenue from selling as it is

= number of bags of Green Health on hand × Selling cost of the Green Health

= 16,500 × $10

= $165,000

Now,

The total cost of production

= Number of bags × variable cost + total fixed cost

= 16500 × $3.10 + $23,000

= $51,150 + $23,000

= $74,150

Therefore,

the revenue from selling

= total revenue from selling the after additional processing - total cost of production

= $178,600 - $74,150 = $104,450

and the net incremental revenue

= ( total revenue from selling the after additional processing) - (total revenue from selling as it is)

= $178,600 - $165,000 = $13,600