Maxim manufactures a cat food product called Green Health. Maxim currently has 1
ID: 2533751 • Letter: M
Question
Maxim manufactures a cat food product called Green Health. Maxim currently has 10,000 bags of Green Health on hand. The variable production costs per bag are $2.00 and total fixed costs are $10,000. The cat food can be sold as it is for $9.25 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,200 cost. The additional processing will yield 10,000 bags of Premium Green and 3,200 bags of Green Deluxe, which can be sold for $8.25 and $6.25 per bag, respectiviely. If Green Health is processed further into Premium Green and Green Deluxe, the total gross profit would be:
A. $70,300
B. $104,700
C. $80,300
D. $100,300
Explanation / Answer
Answer is A. $70,300
Sales ((10,000*$8.25)+(3,200*$6.25) $ 102,500 Less: Common cost ($2*10,000)+$10,000) $ 30,000 Less: Further processing cost $ 2,200 Gross profit $ 70,300