Chocolicious processes cocoa beans into cocoa powder at a processing cost of $9,

Question

Chocolicious processes cocoa beans into cocoa powder at a processing cost of $9,900 per batch. Chocolicious can sell the cocoa powder as is, or it can process the cocoa powder further into either chocolate syrup or boxed assorted chocolates. Once processed, each batch of cocoa beans would result in the following sales revenue: ?(Click the icon to view the sales revenue amounts and additional information.) Has the president made the right or wrong decision? Explain your answer. Be sure to include the correct financial analysis in your response. Begin by completing the following incremental analysis to compare selling the cocoa powder as is with processing it further. (For amounts with a value of $0, make sure to enter "O" in the appropriate input box.) Sell as Cocoa Powder Sell as Chocolate yup Sell as Boxed Assorted Chocolates Revenue Less: Additional processing costs Net benefit Has the president made the right or wrong decision? Explain your answer. The president has made the | ?| decision. Based on the analysis above, the company would realize the highest profits by

Explanation / Answer

OPTION I :

Processed into Boxed Assorted Chocolates:

OPTION II:

PROCESSED INTO CHOCOLATE SYRUP

The president of the firm has not made the best decision. The best decision would be to process the cocoa powder into chocolate syrup for selling.A look over the costs along with the expected revenue plays a vital role in decision making of sell or process further. Also, the $9,900 is a joint sunk cost, and it is not relevant for decision making. Among the two alternatives processing the cocoa powder into boxed assorted chocolates would only increase revenue by $500, where processing the cocoa powder into chocolate syrup would increase revenue by $12,500.

COSTS SELL PROCESS FURTHER DIFFERENCE Expected Revenue Per Batch 14,500 190,000 175,500 Additional Cost of Processing (175,000) (175,000) Total Net Revenue 14,500 15,000 500

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