Question

Walters manufactures a specialty food product that can currently be sold for $21.20 per unit and has 19,200 units on hand. Alternatively, it can be further processed at a cost of $11,200 and converted into 11,200 units of Deluxe and 5,200 units of Super. The selling price of Deluxe and Super are $31.80 and $19.20, respectively. The incremental net income of processing further would be: Multiple Choice $37,760. $48,960. $17,200. $43,200. $11,200.

Answer 1

$37,760

Step-by-step explanation:

The income for the current operation, without further processing, is given by:

`I_1 = 19,200*\$21.20\\I_1=\$407,040`

If the product is further processed at a cost of $11,200, the company would sell 11,200 units at $31,80 each and 5,200 at $19.20 each, for an income of:

`I_2= 11,200*\$31.80+5,200*\$19.20-\$11,200\\I_2=\$444,800`

Therefore, the incremental net income of processing further would be:

`\Delta I=I_2-I_1=\$444,800-\$407,040\\\Delta I=\$37,760`

The incremental net income would be $37,760.