Maxim manufactures a hamster food product called Green Health. Maxim currently h
ID: 2483650 • Letter: M
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 $2.90 and total fixed costs are $10,000. The hamster food can be sold as it is for $8.25 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,900 cost. The additional processing will yield 10,000 bags of Premium Green and 3,900 bags of Green Deluxe, which can be sold for $8.25 and $5.25 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:
A. $92,975.
B. $90,075.
C. $10,475.
D. $7,575.
Explanation / Answer
Incremental sales value=Sale value of Premium green+Sale value of Delux-Sale value of Green health
Incremental sales value=(10000*8.25)+(3900*5.25)-(10000*8.25)
Incremental sales value =$20475
Incremental cost =$2900
Incremental revenue=Incremental sales -Incremental cost
Incremental revenue=(20475-2900)
Incremental revenue=$17575
Less : Fixed cost =$10000
Ans:=$7575