Maxim manufactures a cat food product called Green Health. Maxim currently has 1

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 $1.80 and total fixed costs are $10,000. The cat food can be sold as it is for $9.00 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,000 cost. The additional processing will yield 10,000 bags of Premium Green and 3,000 bags of Green Deluxe, which can be sold for $8 and $6 per bag, respectively. If Green Health is processed further into Premium Green and Green Deluxe, the total gross profit would be: Multiple Choice $68,000. $78,000 $96,000 $98,000

Explanation / Answer

A. $68,000

Sales: Premium (10,000 bags × $8 per bag) $80,000 Deluxe (3,000 bags × $6 per bag) $18,000 Total sales $98,000 Cost of sales: Variable cost (10,000 bags × $1.80) $18,000 Fixed cost $10,000 Further processing cost $2,000 Total cost of sales $30,000 Gross profit $68,000

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