Question

Maxim manufactures a hamster food product called Green Health. Maxim currently has 15,000 bags of Green Health on hand. The variable production costs per bag are $2.80 and total fixed costs are $20,000. 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 15,000 bags of Premium Green and 4,000 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

The multiple choices are:

a.$163,000

b.$13,000

c.$8,200.

d.$5,000.

e.$168,200.

Option A $163,000 is the correct answer

Step-by-step explanation:

Revenue when the 15,000 bags are further processed can be ascertained by sum of revenue from Premium Green and Green deluxe as follows:

revenue=price*quantity

Premium Green revenue=$9*15,000=$135,000

Green Deluxe revenue =$7*4,000=$28,000

Total revenue of Premium Green and Green Deluxe=$135,000+$28,000=$163,000

Option A is correct.

However, if the question required the incremental revenue from further processing,the incremental revenue is the revenue from further processing minus the revenue lost from not selling the 15,000 bags at $10 each

Incremental revenue=$163,000-(15000*$10)=$13,000,hence option B would have been correct.