Question

Farina Foods manufactures a dog food product called Special Scoops. Farina currently has 20,000 bags of Special Scoops in inventory. The variable production costs per bag are $1.50 and total fixed costs are $20,000 per period. The dog food can be sold as is for $7 per bag, or it can be processed further into Prime Scoops and Canine Sports at an additional processing cost of $3,000. This additional processing will yield 15,000 bags of Prime Scoops, which can be sold for $8 per bag, and 10,000 bags of Canine Sports, which can be sold for $6 per bag. The decision that Farina should make and the reason is:

Answer 1

B. process Special Scoops further into Prime Scoops and Canine Sports to increase profits by $37,000.

Step-by-step explanation:

Calculation to determine what the decision that Farina should make and the reason is

First step is to calculate the Special scoops

Special scoops = 20,000 bags x ($7 - $1.50) - $20,000

Special scoops =20,000 bags x$5.5-$20,000

Special scoops =$110,000-$20,000

Special scoops = $90,000

Second step is to calculate the Prime scoops

Prime scoops = 15,000 bags x $8 + 10,000 bags x $6 - (20,000 bags x $1.50 + $20,000 + $3,000)

Prime scoops =$120,000+$60,000-($30,000+$20,000+$3,000)

Prime scoops = $180,000 - $53,000

Prime scoops = $127,000

Now let calculate the Profit increase

Profit increase =$127,000 - $90,000

Profit increase= $37,000

Therefore the decision that Farina should make and the reason is: PROCESS SPECIAL SCOOPS FURTHER INTO PRIME SCOOPS AND CANINE SPORTS TO INCREASE PROFITS BY $37,000.