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.
-Assuming Maxim further processes Green Health further into Premium Green and Green Deluxe, revenue from the two products would be:

Question

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. 
-Assuming Maxim further processes Green Health further into Premium Green and Green Deluxe, revenue from the two products would be:

Quizplus · Accepted Answer

To determine the best choice, we need to calculate the total revenue and cost for each option.

Option 1: Sell Green Health without further processing

Total revenue = $9.00 x 10,000 = $90,000
Total cost = $1.80 x 10,000 + $10,000 = $28,000
Total profit = $90,000 - $28,000 = $62,000

Option 2: Process Green Health into Premium Green and Green Deluxe

Total revenue = ($8.00 x 10,000) + ($6.00 x 3,000) = $80,000 + $18,000 = $98,000
Total cost = $1.80 x 10,000 + $10,000 = $28,000
Total profit = $98,000 - $28,000 = $70,000

Therefore, the best choice is to process Green Health into Premium Green and Green Deluxe, which will result in a total profit of $70,000. Answer: C.

Maxim Manufactures a Hamster Food Product Called Green Health