Maxim manufactures a hamster food product called Green Health. Maxim currently h
ID: 2532073 • 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 $3.40 and total fixed costs are $10,000. The hamster food can be sold as it is for $8.75 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,400 cost. The additional processing will yield 10,000 bags of Premium Green and 3,400 bags of Green Deluxe, which can be sold for $7.75 and $5.75 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:
Explanation / Answer
Calculate net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be :
7150 is the net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe.
Sale price of Premium gree (10000*7.75) 77500 Sale price of green deluxe (3400*5.75) 19550 Total sale price after further processing 97050 Sale price of green health (10000*8.75) 87500 Incremental sale revenue 9550 Incremental cost -2400 Incremental profit (loss) 7150