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. If Special Export is processed further into Prime Cat Food and Feline Surprise, the total gross profit would be:

Question

Quizplus · Accepted Answer

Explanation:If Special Export is processed further, the total variable cost will be $1.80 per bag for 10,000 bags of Prime Cat Food and $1.80 per bag for 3,000 bags of Feline Surprise, totaling $24,000. The total fixed cost is $10,000. The total additional processing cost is $2,000. The total cost is $24,000 + $10,000 + $2,000 = $36,000. The total revenue from selling 10,000 bags of Prime Cat Food at $8 per bag is $80,000. The total revenue from selling 3,000 bags of Feline Surprise at $6 per bag is $18,000. The total revenue is $80,000 + $18,000 = $98,000. The total gross profit is $98,000 - $36,000 = $62,000.

Marsden Manufactures a Cat Food Product Called Special Export