Question

Maxim manufactures a hamster food product called Green Health. Maxim currently has 15,500 bags of Green Health on hand. The variable production costs per bag are $2.90 and total fixed costs are $21,000. The hamster food can be sold as it is for $10.00 per bag or be processed further into Premium Green and Green Deluxe at an additional cost. The additional processing will yield 15,500 bags of Premium Green and 4,100 bags of Green Deluxe, which can be sold for $9 and $7 per bag, respectively. The incremental revenue of processing Green Health further into Premium Green and Green Deluxe would be:_________.
a. $163,200.
b. $13,200.
c. $8,200.
d. $5,000.
e. $168,200.

Answer 1

Answer:

b. $13,200.

Explanation:

Revenue from the sale of Green Health bags = Number of bags * Selling price

Revenue from the sale of Green Health bags = 15,500 bags * $10

Revenue from the sale of Green Health bags = $155,000

Revenue from Premium Green = Number of bags * Selling price

Revenue from Premium Green = 15,500 bags * $9

Revenue from Premium Green = $139,500

Revenue from Green Deluxe = Number of bags * Selling price

Revenue from Green Deluxe = 4,100 bags * $7

Revenue from Green Deluxe = $28,700

Incremental revenue = Revenue from Premium Green + Revenue from Green Deluxe - Revenue from Green Health\

Incremental revenue = $139,500 + $28,700 - $155,000

Incremental revenue = $13,200

So, the incremental revenue of processing Green Health further into Premium Green and Green Deluxe would be $13,200.