I\'d appreciate a step-by-step on this. Answers are great and all, but I need to

Question

I'd appreciate a step-by-step on this. Answers are great and all, but I need to know how to do this.

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 $2.10 and total fixed costs are $10,000. The hamster food can be sold as it is for $9.35 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,300 cost. The additional processing will yield 10,000 bags of Premium Green and 3,300 bags of Green Deluxe, which can be sold for $8.35 and $6.35 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:

Explanation / Answer

Calculation of Incremental Income of further Processing:

Increemental Sales Value =

10,000 Premium Green bags sold at $ 8.35 per bag + 3,300 Green Deluxe bags sold at $ 6.35 per bag - 10,000 Green Health bags sold at $ 9.35 per bag

( 10,000 * 8.35 ) + ( 3,300 * 6.35 ) - ( 10,000 * 9.35)

= $ 83,500 + $ 20,995 - $ 93,500

= $ 10,955

Therefore, Incremental Sales Value = $ 10,955

Incremental Cost = The Additional Cost incurred for furhther processing into Premium Green and Deluxe Green

Incremental Cost = $ 2,300

Therefore, Incremental Income of further processing = Incremental Sales Value - Incremental Cost

$ 10,955 - $ 2,300 = $ 8,655

The Incremental Income = $ 8,655.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.