Dessert Delight processes cocoa beans into cocoa powder at a processing cost of

Question

Dessert Delight processes cocoa beans into cocoa powder at a processing cost of $10,300 per batch. Dessert Delight can sell the cocoa powder as is, or it can process the cocoa powder further into either chocolate syrup or boxed assorted chocolates. Once processed, each batch of cocoa beans would result in the following sales revenue EE Click the icon to view the sales revenue amounts and additional information.) Has the president made the right or wrong decision? Explain your answer. Be sure to include the correct financial analysis in your response. Begin by completing the following incremental analysis to compare selling the cocoa powder as is with processing it further. For amounts with a value of $0, make sure to enter"O" in the appropriate input box.) Sell as Cocoa Powder Sell as Sellas Boxed Syrup Chocolates Revenue Less: Additional processing costs Net benefit Has the president made the right or wrong decision? Explain your answer. The president has made the | ? decision. Based on the analysis above, the company would realize the highest profits by

Explanation / Answer

SOLUTION

Process into boxed assorted chocolates:

Process into chocolate syrup:

The President has not made the best decision. The best decision would be to process the cocoa powder into chocolate syrup to sell. It is important to look at costs, as well as expected revenue, when deciding to sell or process further. Also, the $10,300 is a joint sunk cost, and therefore is not relevant to the decision. Processing cocoa powder into boxed assorted chocolates will increase profits by $2,000, but processing cocoa powder into chocolate syrup will increase profits by $20,000.

Costs Sell ($) Process Further ($) Difference ($) Expected revenue 14,000 198,000 184,000 Less: Additional costs of processing (182,000) (182,000) Net Benefit 14,000 16,000 2,000

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