Maxim manufactures a hamster food product called Green Health. Maxim currently h

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 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, respectiviely. 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 income (loss ) :

so answer is d) 7575

Sales revenue from premium green (10000*7.25) 72500 Sales revenue from green deluxe (3900*5.25) 20475 Total sales revenue after further processing 92975 Sales revenue from green health (10000*8.25) 82500 Incremental revenue 10475 Incremental cost -2900 Incremental income 7575

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