Barnes 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 Exceptional and 6,000 units of Premium. The selling price of Exceptional and Premium are $30 and $20, respectively. The incremental net income of processing further would be:

Question

Quizplus · Accepted Answer

If Barnes sells its specialty food product as is, it can generate a revenue of 22*20,000 = $440,000.
If Barnes further processes its product, it can generate a revenue of 30*12,000 + 20*6,000 = $480,000.
The incremental revenue from further processing = $480,000 - $440,000 = $40,000.
However, we need to also consider the cost of further processing, which is $12,000.
So the incremental net income from further processing = $40,000 - $12,000 = $28,000.
Therefore, the best choice would be to further process the product to generate an incremental net income of $28,000.

Barnes Manufactures a Specialty Food Product That Can Currently Be