a.

Maxim manufactures a hamster food product called Green Health. Maxim currently has 10,000 bags of Green Health on hand. The variable production costs per bag are $2.40 and total fixed costs are $10,000. The hamster food can be sold as it is for $9.65 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,600 cost. The additional processing will yield 10,000 bags of Premium Green and 3,600 bags of Green Deluxe, which can be sold for $8.65 and $6.65 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:

$110,440.

$107,840.

$13,940.

$11,340.

$2,600.

b.

Minor Electric has received a special one-time order for 600 light fixtures (units) at $4 per unit. Minor currently produces and sells 3,000 units at $5.00 each. This level represents 75% of its capacity. Production costs for these units are $3.00 per unit, which includes $2.00 variable cost and $1.00 fixed cost. To produce the special order, a new machine needs to be purchased at a cost of $450 with a zero salvage value. Management expects no other changes in costs as a result of the additional production. If Minor wishes to earn $550 on the special order, the size of the order would need to be:

500 units.

200 units.

2,000 units.

150 units.

1,000 units.

c.

Maxim manufactures a cat food product called Green Health. Maxim currently has 10,000 bags of Green Health on hand. The variable production costs per bag are $2.50 and total fixed costs are $10,000. The cat food can be sold as it is for $9.75 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,700 cost. The additional processing will yield 10,000 bags of Premium Green and 3,700 bags of Green Deluxe, which can be sold for $8.75 and $6.75 per bag, respectively. If Green Health is processed further into Premium Green and Green Deluxe, the total gross profit would be:

$109,775.

$112,475.

$84,775.

$115,175.

$74,775.

d.

Ahngram Corp. has 1,000 defective units of a product that cost $3.30 per unit in direct costs and $6.80 per unit in indirect cost when produced last year. The units can be sold as scrap for $4.30 per unit or reworked at an additional cost of $2.80 and sold at full price of $12.90. The incremental net income (loss) from the choice of reworking the units would be:

$5,800.

$0.

($2,800).

$10,100.

$2,800.