Question

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 $3.70 and total fixed costs are $10,000. The hamster food can be sold as it is for $9.05 per bag or be processed further into Premium Green and Green Deluxe at an additional $2100 cost. The additional processing will yield 10,000 bags of Premium Green and 3100 bags of Green Deluxe, which can be sold for $8.05 and $6.05 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:

Answer 1

$6,655

Step-by-step explanation:

Variable cost per bag = $3.70

Total fixed cost = $10,000

Unit selling price before further processing = $9.05

No of bags = 10,000

Contribution per bag = 9.05-3.7 = $5.35

Total revenue = 9.05*10,000= $90,500

Net income =90500-(10,000+37000 )= 43500

Incremental cost =2100

Incremental revenue( 10,000*8.05) + (3100*6.05)

80500 + 18755 = $99255

Net income = 99255 - (2100+47000)= 50155

Financial advantage = 50155-43500=6655