Question
Maxim manufactures a lamster food Product called Green Health. Maxim currently has 30,000 bags of 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 in for $8.25 per bag or be processed further into premium Green Deluxe, Which can be sold for $7.25 and $5.25 per bag. respectively The net advantage (incremental income) of Processing Green Health further into Premium Green and Green Deluxe would be:
Explanation / Answer
1.) Net Advantage (Incremental Income)
=(10000*7.25+3900*5.25)-2900-10000*8.25=7575
2.) Total Gross Profit
= (Total Revenue)-Variable Production cost-fixed cost-cost of additional processing
i.e
=(10000*8.25+3200*6.25)-(10000*2)-10000-2200=70300