Question

MC Qu. 54 Maxim manufactures a hamster food product... Maxim manufactures a hamster food product called Green Health. Maxim currently has 10,000 bags of Green Health on hand. The variable production costs per bag are $3.60 and total fixed costs are $10,000. The hamster food can be sold as it is for $8.95 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,200 cost. The additional processing will yield 10,000 bags of Premium Green and 3,200 bags of Green Deluxe, which can be sold for $7.95 and $5.95 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:

Answer 1

Maxim

The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:

= $6,840.

Step-by-step explanation:

a) Data and Calculations:

Inventory of Green Health = 10,000 bags

Production costs per bag = $3.60

Total variable costs = $36,000 (10,000 * $3.60)

Total fixed costs = $10,000

Total production costs = $46,000 ($36,000 + $10,000)

Selling price before further processing = $8.95 per bag

Total revenue from selling 10,000 bags = $89,500 (10,000 * $8.95)

Additional processing cost = $2,200

Total revenue from selling 10,000 bags of Premium Green and 3,200 bags of Green Deluxe:

Premium Green (10,000 * $7.95) = $79,500

Green Deluxe (3,200 * $5,95) = 19,040

Total revenue = $98,540

Less additional processing costs (2,200)

Net revenue from further processing $96,340

Net advantage of further processing = $6,840 ($96,340 - $89,500)