Problem 8 (10 points): A chemical company spent $532,000 to produce 150,000 gall
ID: 2518342 • Letter: P
Question
Problem 8 (10 points): A chemical company spent $532,000 to produce 150,000 gallons of a chemical that can be sold for $4.80 per gallon. This chemical can be further processed into a weed killer that can be sold for $8.20 per gallon. It will cost $270,000 to process the chemical into the weed killer. If the company decides to process further, how will it affect the operating income? Problem 9 (Bonus points 10): SoftSeats produces chairs and couches for reception areas and executive suites. Historically, SoftSeats has manufactured their own cushions for the chair they sell. However, a cushion manufacturer has recently approached SoftSeats with an offer to produce their cushions for them for $45 per cushion. SoftSeats incurs the following costs in the production of the seat cushions: $10 for direct materials, $20 for direct labor, $10 for variable overhead, and $10 for fixed overhead. Management is wondering whether they should accept the offer. What would be the increase or decrease in per-unit costs if the cushions were purchased from the outside supplier?Explanation / Answer
8) Incremental analysis :
Net operating income increase by $240000
Note : Please post q 9 individually for answer or specify question which want you answer
Revenue after further processing (150000*8.20) 1230000 Revenue without further processing (150000*4.80) -720000 Incremental revenue 510000 Less; Incremental cost -270000 Incremental profit (loss) 240000