Marsden manufactures a cat food product called Special Export. Marsden currently has 10,000 bags of Special Export on hand. The variable production costs per bag are $1.80 and total fixed costs are $10,000. The cat food can be sold as it is for $9.00 per bag or be processed further into Prime Cat Food and Feline Surprise at an additional $2,000 cost. The additional processing will yield 10,000 bags of Prime Cat Food and 3,000 bags of Feline Surprise, which can be sold for $8 and $6 per bag, respectively. The net advantage (incremental income) of processing Special Export further into Prime and Feline Surprise would be:

Question

Quizplus · Accepted Answer

The net advantage of processing further is calculated by comparing the additional revenue from selling Prime Cat Food and Feline Surprise with the additional processing costs. The revenue from selling 10,000 bags of Prime Cat Food at $8 each and 3,000 bags of Feline Surprise at $6 each is $80,000 + $18,000 = $98,000. The revenue from selling 10,000 bags of Special Export as is would be $90,000. The additional processing cost is $2,000. Therefore, the net advantage is $98,000 - $90,000 - $2,000 = $6,000.

Marsden Manufactures a Cat Food Product Called Special Export