Question

Ahngram Corp. has 1,000 carton of oranges that cost $50 per carton in direct costs and $26.50 per carton in indirect costs and sold for $70 per carton. The oranges can be processed further into orange juice at an additional cost of $22.50 and sold at a price of $126. The incremental income (loss) from processing the oranges into orange juice would be:

Answer 1

Answer:

It is more convenient to continue processing. Incremental income= 27,000 + 6,500= $33,500

Explanation:

Giving the following information:

Ahngram Corp. has 1,000 cartons of oranges that cost $50 per carton in direct costs and $26.50 per carton in indirect costs and sold for $70 per carton. The oranges can be processed further into orange juice at an additional cost of $22.50 and sold for $126.

To determine whether it is more convenient to sell the cartons as it is or continue processing, we need to calculate the effect on income:

Sell now:

Income= 1,000*(70 - 50 - 26.5)= -$6,500

Continue processing:

We will assume that from 1,000 cartons you can produce 1,000 lt.

Income= 1,000*(126 - 76.5 - 22.5)= $27,000

It is more convenient to continue processing.