Question

A company has the choice of either selling 600 apples or processing them into applesauce. The company could sell the apples as they are for $2.00 per unit. Alternatively, each apple could be made into one unit of applesauce with incremental costs of $0.60 per unit for direct materials, $1.00 per unit for direct labor, and $0.80 per unit for overhead, and then sold for $5.00 each. What is the amount of incremental income (loss) from processing the apples into applesauce?

Answer 1

$0.60

Step-by-step explanation:

The computation of the incremental loss or income is shown below:

Sales after process $5

Less sales before process $2

Incremental revenue $3

Less:

Direct material per unit $0.60

Direct labor per unit $1 per unit

Overhead $0.80 per unit

Incremental income $0.60

We simply deduct the incremental cost from the incremental revenue so that the incremental income could come