A dairy company purchases raw milk and processes it for resale. The sale price of the milk is $3 per gallon and there is no excess capacity. Total costs to the split-off point are $10,000 for 20,000 gallons of processed milk. The dairy company is considering making ice cream instead of selling the milk. Additional costs to manufacture the ice cream will be $30,000. The process will yield 15,000 gallons of ice cream which can be sold for $5 per gallon.

1. How much gross revenue will be earned if the milk is sold?

a.$3

b. $20,00

c. $30,000

d. $60,000

2) How much gross revenue will be earned if ice cream is sold?

a. $15,000

b. $30,000

c. $75,000

3) If Ice cream is sold, what is the net revenue before considering costs up to the split-off point?

a. $75,000

b. $45,000

c. $30,000

-Should the dairy company sell ice cream instead of milk?

a. YES

b. NO