Grace Co. can further process Product B to produce Product C. Product B is currently selling for $60 per pound and costs $38 per pound to produce. Product C would sell for $95 per pound and would require an additional cost of $13 per pound to produce. What is the differential revenue of producing and selling Product C?
A) $35 per pound
B) $38 per pound
C) $95 per pound
D) $60 per pound

Question

Quizplus · Accepted Answer

The differential revenue is the difference between the revenue earned from selling Product C and the cost of producing Product C.

To produce Product C, the company incurs an additional cost of $13 per pound, making the total cost of producing one pound of C:

$38 (cost of producing B) + $13 (additional cost) = $51

Product C sells for $95 per pound.

Therefore, the differential revenue of producing and selling Product C is:

$95 (selling price) - $51 (total cost) = $44

So the differential revenue of producing and selling Product C is $44 per pound. However, the question is asking for the differential revenue only for the production of Product C (not including the revenue from selling Product B).

Product B sells for $60 per pound, and its cost of production is $38 per pound, so the differential revenue of producing and selling Product B is:

$60 (selling price) - $38 (cost of production) = $22

Since the question is only asking for the differential revenue of producing and selling Product C, we need to subtract the differential revenue of producing and selling Product B from the differential revenue of producing and selling Product C:

$44 (differential revenue of C) - $22 (differential revenue of B) = $22

Therefore, the differential revenue of producing and selling Product C only is $22 per pound.

The best answer choice is A because it correctly calculates the differential revenue of producing and selling Product C.

Grace Co Can Further Process Product B to Produce Product C