Ahngram Corp.has 1,000 carton of oranges that cost $10 per carton in direct costs and $16.50 per carton in indirect costs and sold for $30 per carton.The oranges can be processed further into orange juice at an additional cost of $12.50 and sold at a price of $46.The incremental income (loss)from processing the oranges into orange juice would be:
A)$30,500.
B)$22,500.
C)($30,500).
D)$33,500.
E)$23,500.

Question

Quizplus · Accepted Answer

The incremental income from processing the oranges into orange juice is calculated by comparing the additional revenue from selling the orange juice to the additional costs of processing the oranges into juice. The additional revenue per carton is $46 (selling price of juice) - $30 (selling price of oranges) = $16. The additional cost per carton is $12.50. Therefore, the incremental income per carton is $16 - $12.50 = $3.50. For 1,000 cartons, the total incremental income is $3.50 * 1,000 = $3,500. However, the correct calculation should consider the total revenue and total costs for both scenarios to accurately determine the incremental income. The initial mistake in calculation led to the wrong conclusion. The correct approach is to calculate the net benefit of processing further:- Without processing: Selling the oranges as is would generate $30,000 ($30 * 1,000 cartons) in revenue. The cost is $26.50 per carton ($10 direct + $16.50 indirect), totaling $26,500 for 1,000 cartons. The profit without processing is $30,000 - $26,500 = $3,500.- With processing: The revenue from selling as juice is $46,000 ($46 * 1,000). The total cost now includes the additional $12.50 processing cost per carton, making it $39 ($26.50 original cost + $12.50 additional cost) per carton, or $39,000 for 1,000 cartons. The profit with processing is $46,000 - $39,000 = $7,000.The incremental income is the difference in profit, $7,000 (with processing) - $3,500 (without processing) = $3,500. This indicates an error in the initial response and calculation. The correct incremental income should reflect the difference in net profits between the two scenarios, not just the difference in additional costs and revenues.