Answer:
If the company decides to process it further, it will increase operating income $68,000
Explanation:
Selling the chemical on processing,
the Sales will be = Gallons of chemical produce × Selling price per gallon
= 150,000 × $5
= $750,000
Cost of Processing the chemical = $530,000
Operating Income on selling the chemical:
= Sales - Cost of Processing the chemical
= $750,000 - $530,000
= $220,000
Total cost incurred to process the chemical into a weed killer:
= Cost of Processing the chemical +
= $532000 + $260,000
= $792,000
Sales of 150,000 gallons of weed killer:
= Selling price per gallon × Chemical produce
= $7.20 × 150,000 gallons
= $1,080,000
Operating income on processing to weed killer:
= Sales of 150,000 gallons of weed killer - Total cost incurred to process the chemical into a weed killer
= $1,080,000 - $792,000
= $288,000
So, If the company decides to process it further, it will increase operating income by:
= Operating income on processing to weed killer - Operating Income on selling the chemical
= $288,000 - $220,000
= $68,000
