Walters manufactures a specialty food product that can currently be sold for $22 per unit and has 20,000 units on hand.Alternatively,it can be further processed at a cost of $12,000 and converted into 12,000 units of Deluxe and 6,000 units of Super.The selling price of Deluxe and Super are $30 and $20,respectively.The incremental income of processing further would be:
A)$40,000.
B)$28,000.
C)$18,000.
D)$44,000.
E)$12,000.

Question

Quizplus · Accepted Answer

If the 20,000 units of the specialty food product is sold as is, the total revenue will be 20,000 x $22 = $440,000.
If the 20,000 units are further processed, 12,000 units will be converted to Deluxe and will sell for a total of 12,000 x $30 = $360,000. The other 6,000 units will be converted to Super and will sell for a total of 6,000 x $20 = $120,000. The total revenue from processing further will be $480,000.
The incremental cost of processing further is $12,000. Therefore, the incremental income of processing further will be $480,000 - $440,000 - $12,000 = $28,000.
Since the incremental income of processing further is positive, it would be the best choice to process the 20,000 units further, resulting in 12,000 units of Deluxe and 6,000 units of Super.

Walters Manufactures a Specialty Food Product That Can Currently Be