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

Question

Marsden manufactures a cat food product called Special Export. Marsden currently has 19,000 bags of Special Export on hand. The variable production costs per bag are $1.8 and total fixed costs are $19,000. The cat food can be sold as it is for $9.0 per bag or be processed further into Prime Cat Food and Feline Surprise at an additional $3,500 cost. The additional processing will yield 19,000 bags of Prime Cat Food and 5,250 bags of Feline Surprise, which can be sold for $8.0 and $6.0 per bag, respectively.

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

$187,000

$183,500

$180,000

$145,800

$126,800

Marsden manufactures a cat food product called Special Export. Marsden currently has 19,000 bags of Special Export on hand. The variable production costs per bag are $1.8 and total fixed costs are $19,000. The cat food can be sold as it is for $9.0 per bag or be processed further into Prime Cat Food and Feline Surprise at an additional $3,500 cost. The additional processing will yield 19,000 bags of Prime Cat Food and 5,250 bags of Feline Surprise, which can be sold for $8.0 and $6.0 per bag, respectively.

Explanation / Answer

Total cost before processing

Variable costs = Total bags x Variable cost per bag

= 19,000 x $1.80

= $ 34,200

Fixed costs = $19,000

So, Total cost = $ 34,200 + $19,000

= $53,200

Total costs after processing

= Total costs before processing + Further processing costs

= $53,200 + $3,500

= $56,700

Total consideration after processing

= 19,000 @ $8 + 5,250 @ $6

= $152,000 + $31,500

= $183,500

So, Gross profit

= Total consideration after processing - Total costs after processing

= $183,500 - $56,700

= $126,800

So, option E is the correct option

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