A chemical company spent $ 530 comma 000 to produce 150 comma 000 gallons of a chemical that can be sold for $ 5.00 per gallon. This chemical can be further processed into a weed killer that can be sold for $ 7.20 per gallon. It will cost $ 260 comma 000 to process the chemical into the weed killer. Which of the following is true A) If the company decides to process it further, it will increase operating income$578,000

B) If the company decides to process it further, it will increase operating income $390,000

C) If the company decides to process it further, it will decrease operating income by $1,380,000

D) To maximize operating income, the company should continue to sell the chemical as is.

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