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:

Question

Business

Annabel Hoffman

6 February, 12:02

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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Answers (1)

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Drew Wright · Answer 1

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