Question

Cocoalicious processes cocoa beans into cocoa powder at a processing cost of $ 10 comma 300 per batch. Cocoalicious can sell the cocoa powder as​ is, or it can process the cocoa powder further into chocolate syrup or boxed assorted chocolates. Once​ processed, each batch of cocoa beans would result in the following sales​ revenue: LOADING...​(Click the icon to view the sales​ revenue.) The cost of transforming the cocoa powder into chocolate syrup would be $ 73 comma 000. ​Likewise, the company would incur $ 179 comma 000 to transform the cocoa powder into boxed assorted chocolates. The company president has decided to make boxed assorted chocolates owing to its high sales value and to the fact that the $ 10 comma 300 cost of processing cocoa beans​ "eats up" most of the cocoa powder profits. Has the president made the right or wrong​ decision? Explain your answer.

Answer 1

Answer: The president has made the right decision, since the incremental revenue is greater than the processing cost of boxed assorted chocolate.

Explanation:

The question is lacking some information about sales revenue,it is not complete since it is said in the question that boxed assorted chocolate has high sales value and that $10,300 cost of processing cocoa beans eat up most of the cocoa powder profits.

Using the concept of incremental analysis, As a general rule, if the incremental revenue are greater than the incremental processing cost.cocoalicious should process further. Since the incremental revenue of boxed assorted chocolate is greater than the processing cost which would result into higher incremental income for the boxed assorted chocolate. Therefore, the president has made the right decision.