Maxim manufactures a hamster food product called Green Health. Maxim currently h
ID: 2594535 • 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 $2.00 and total fixed costs are $10,000. The hamster 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, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be: o $102,500. O $7,800 $10,000 O $2,200 $100,300.Explanation / Answer
b) $7,800
Revenue if processed further Premium ( 10,000 x $8.25) $82,500 Deluxe ( 3,200 x $6.25) $20,000 Total Revenue if processed $102,500 Revenue if sold as Green health (10,000 bags x $9.25) $92,500 Incremental revenue $10,000 Cost to process further $(2,200) Incremental income to process further $7,800