Marsden manufactures a cat food product called Special Export. Marsden currently

Question

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 $2.20 and total fixed costs are $10,000. The cat food can be sold as it is for $9.45 per bag or be processed further into Prime Cat Food and Feline Surprise at an additional $2,400 cost. The additional processing will yield 10,000 bags of Prime Cat Food and 3,400 bags of Feline Surprise, which can be sold for $8.45 and $6.45 per bag, respectively. If Special Export is processed further into Prime Cat Food and Feline Surprise, the total gross profit would be:

Explanation / Answer

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 $2.20 and total fixed costs are $10,000. The cat food can be sold as it is for $9.45 per bag or be processed further into Prime Cat Food and Feline Surprise at an additional $2,400 cost. The additional processing will yield 10,000 bags of Prime Cat Food and 3,400 bags of Feline Surprise, which can be sold for $8.45 and $6.45 per bag, respectively.

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


Prime Cat Food 10,000 X $8.45 = $94500
Feline Surprise 3,400 X $6.45 = $21 930

Total Revenue of Additional Processing = $116430


Less:
Variable Production Costs of (10,000 X $2.20) = $22,000
Fixed Costs = $10,000


Gross Profit = $116430= $22,000 - $10,000 - $2,400) = 116430-9600=106830

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