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 $2.20 and total fixed costs are $10,000. The hamster food can be sold as it is for $9.45 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,400 cost. The additional processing will yield 10,000 bags of Premium Green and 3,400 bags of Green Deluxe, which can be sold for $8.45 and $6.45 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:

Answer 1

$14,030

Step-by-step explanation:

The computation of the net advantage of processing is shown below:

In this question we have to compare the sales revenue between two cases

In the first case

Sales revenue is

10,000 bags × $8.45 = $84,500

3,400 bags × $6.45 = $21,930

Total sales = $106,430

Less: additional cost -$2,400

Net sales revenue $104,030

In the second case

The sales revenue is

10,000 bags × $9 = $90,000

Therefore, the incremental income is

= $104,030 - $90,000

= $14,030