Question

Graham corporation has 1,000 cartons of oranges that were harvested at a cost of 28,000. The oranges can be sold as is for32,560. The oranges can be processed further into orange juice at an additional cost of 12,700 and be sold at a price of48,800. What would be the incremental income (loss) from processing the oranges into orange juice?

1) $36,100
2) $16,240
3) $(3,540)
4) $3,540
5) $16,240

Answer 1

The incremental income from processing the oranges into orange juice is found by subtracting the additional revenue ($48,800) after processing from the sales as is ($32,560) and the additional costs ($12,700). The correct incremental income is $3,540.

The incremental income from processing the Graham Corporation's oranges into orange juice can be calculated by comparing the additional revenue to the additional costs. If sold as is, the oranges would bring $32,560. After processing, which costs another $12,700, they could be sold for $48,800. Therefore, the incremental income is the difference in sales ($48,800 - $32,560) minus the additional processing cost ($12,700).

The incremental income from processing the oranges into orange juice would be $3,540. This is calculated as

($48,800 - $32,560 - $12,700 = $3,540). Thus, the correct answer is choice 4) $3,540.