Question

Walters manufactures a specialty food product that can currently be sold for $21.20 per unit and has 19,200 units on hand. Alternatively, it can be further processed at a cost of $11,200 and converted into 11,200 units of Deluxe and 5,200 units of Super. The selling price of Deluxe and Super are $31.80 and $19.20, respectively. The incremental net income of processing further would be: Multiple Choice $37,760. $48,960. $17,200. $43,200. $11,200.

Answer 1

Answer:

$37,760

Explanation:

The income for the current operation, without further processing, is given by:

$I_1 = 19,200*\ 21.20\\I_1=\ 407,040$

If the product is further processed at a cost of $11,200, the company would sell 11,200 units at $31,80 each and 5,200 at $19.20 each, for an income of:

$I_2= 11,200*\ 31.80+5,200*\ 19.20-\ 11,200\\I_2=\ 444,800$

Therefore, the incremental net income of processing further would be:

$\Delta I=I_2-I_1=\ 444,800-\ 407,040\\\Delta I=\ 37,760$

The incremental net income would be $37,760.