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4 July, 02:32

Maxim manufactures a hamster food product called Green Health. Maxim currently has 10,000 bags of Green Health on hand. The variable production costs per bag are $2.10 and total fixed costs are $10,000. The hamster food can be sold as it is for $9.35 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,300 cost. The additional processing will yield 10,000 bags of Premium Green and 3,300 bags of Green Deluxe, which can be sold for $8.35 and $6.35 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:

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  1. 4 July, 06:08
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    Incremental Income=$8655

    Explanation:

    To calculate the incremental income, first, we need to calculate the net income of 10000 bags of Green Health and compare to the net income of processing Green Health further into Premium Green and Green Deluxe.

    Green Health:

    Sales=10000*9,35 = 93500

    Variable Cost = 10000*2,10=21000

    Fixed cost = 10000

    Net profit = 62500

    Premium Green and Green Deluxe.

    Premium Green sales=10000*8,35 = 83500

    Green Deluxe sales=3300*6,35=20955

    Variable costs = 21000+2300=23300

    Fixed costs=10000

    Net profit=71155

    Incremental Income=71155-62500=8655
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