Chocolicious processes cocoa beans into cocoa powder at a processing cost of S9,

Question

Chocolicious processes cocoa beans into cocoa powder at a processing cost of S9,500 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 Syrup Sell as Boxed Assorted Chocolates Data Table Revenue Less: Additional processing costs Net benefit Cocoa powder Chocolate syrup Boxed assorted chocolates S 14,000 104,000 202,000 The cost of transforming the cocoa powder into chocolate syrup would be $70,000. Likewise, the company would incur a cost of $176,000 to transform the cocoa powder into boxed assorted chocolates. The company president has decided to make boxed assorted chocolates due to its high sales value and to the fact that the cocoa bean processing cost of S9,500 eats up most of the cocoa powder profits. Print Done

Explanation / Answer

Since the net benefit from sale of chocolate syrup is $8000 (34000 - 26000) higher than that of the net benefit from the sale of boxed assorted chocolates. Hence the president decision to make boxed assorted chocolates due to its high sales value is wrong as he should also consider the additional costs to be incurred.

Incremental Analysis Sell as cocoa powder Sell as chocolate syrup Sell as Boxed Assorted Chocolates Revenue 14000 104000 202000 Less: Additional Processing Costs 70000 176000 Net Benefit 14000 34000 26000

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