Maxim manufactures a hamster food product called Green Health. Maxim currently h
ID: 2485213 • 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 $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: A. $92,975. B. $90,075. C. $10,475. D. $7,575.
Explanation / Answer
Answer: The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be: D. $7,575.
Revenue from 3900 bags of green delux @ $5.25 per bag $ 20,475.00 Revenue from 10000 bags of Premium Green @ $7.25 per bag $ 72,500.00 Total $ 92,975.00 Less: Revenue for 10000 bags of hamster food @$8.25 per bag $ 82,500.00 Incremental revenue $ 10,475.00 Incremental processing cost $ 2,900.00 Incremental Profit $ 7,575.00