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 net income of processing further would be:

Question

Quizplus · Accepted Answer

If Walters sells the product as is, the revenue will be 20,000 x $22 = $440,000.

If Walters processes the product further, the total revenue will be:

12,000 Deluxe x $30 = $360,000
6,000 Super x $20 = $120,000

Total revenue = $480,000

The incremental net income of processing further is:

Total revenue - extra cost = $480,000 - ($12,000) = $468,000

The incremental net income is:

$468,000 - $440,000 = $28,000

Therefore, the best choice is to process the product further, as it will result in an incremental net income of $28,000.

Walters Manufactures a Specialty Food Product That Can Currently Be