A company has the choice of either selling 600 apples or processing them into applesauce.The company could sell the apples as they are for $2.00 per unit.Alternatively,each apple could be made into one unit of applesauce with incremental costs of $0.60 per unit for direct materials,$1.00 per unit for direct labor,and $0.80 per unit for overhead,and then sold for $5.00 each.
-What is the amount of incremental income (loss)from processing the apples into applesauce?
A)$3.00 per unit.
B)$(3.00)per unit.
C)$7.00 per unit.
D)$(0.60)per unit.
E)$0.60 per unit.

Question

Quizplus · Accepted Answer

The incremental income from processing the apples into applesauce is calculated by comparing the net income from selling the applesauce to the income from selling the apples as they are. Selling price of applesauce is $5.00 per unit, and the incremental costs (direct materials $0.60, direct labor $1.00, and overhead $0.80) total $2.40 per unit. Thus, the incremental income per unit is $5.00 - $2.40 - $2.00 (the selling price of apples as they are) = $0.60.

A Company Has the Choice of Either Selling 600 Apples