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 $1.80 and total fixed costs are $10,000.The hamster food can be sold as it is for $9.00 per bag or be processed further into Premium Green and Green Deluxe at an additional cost.The additional processing will yield 10,000 bags of Premium Green and 3,000 bags of Green Deluxe,which can be sold for $8 and $6 per bag,respectively.
-The incremental revenue of processing Green Health further into Premium Green and Green Deluxe would be:
A)$98,000.
B)$96,000.
C)$8,000.
D)$6,000.
E)$2,000.

Question

Quizplus · Accepted Answer

The incremental revenue is calculated by comparing the revenue from selling the products as they are versus the revenue after further processing. Selling as is: 10,000 bags * $9/bag = $90,000. After processing: (10,000 bags * $8/bag) + (3,000 bags * $6/bag) = $80,000 + $18,000 = $98,000. The incremental revenue is $98,000 - $90,000 = $8,000.

Maxim Manufactures a Hamster Food Product Called Green Health