Assume a company purchases honeycombs from beekeepers for $2.00 a pound. The honey can be sold in raw form for $3.20 a pound or it can be used to make honey drop candies. Each package of candies contains three-quarters of a pound of honey and can be sold for $4.40. In addition to the cost of the honey, making and selling each container of candies incurs additional variable costs of $1.10 per unit. The monthly fixed costs associated with making the candies include: Master candy-maker's salary $4,500 Depreciation of candy-making equipment Salary of salesperson dedicated to this product 2,000 $ 6,900 Total fixed costs 400 The candy-making equipment does not wear out through use and it has no resale value. Assuming the company makes and sells 8,000 containers of candy, what is the financial advantage (disadvantage) of continuing to process raw honey into candies? Multiple Choice $(6,100) $700 $300 $(5,700)
Assume a company purchases honeycombs from beekeepers for $2.00 a pound. The honey can be sold in raw form for $3.20 a pound or it can be used to make honey drop candies. Each package of candies contains three-quarters of a pound of honey and can be sold for $4.40. In addition to the cost of the honey, making and selling each container of candies incurs additional variable costs of $1.10 per unit. The monthly fixed costs associated with making the candies include: Master candy-maker's salary $4,500 Depreciation of candy-making equipment Salary of salesperson dedicated to this product 2,000 $ 6,900 Total fixed costs 400 The candy-making equipment does not wear out through use and it has no resale value. Assuming the company makes and sells 8,000 containers of candy, what is the financial advantage (disadvantage) of continuing to process raw honey into candies? Multiple Choice $(6,100) $700 $300 $(5,700)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Assume a company purchases honeycombs from beekeepers for $2.00 a pound. The honey can be sold in raw form for $3.20 a pound
or it can be used to make honey drop candies. Each package of candies contains three-quarters of a pound of honey and can be sold
for $4.40. In addition to the cost of the honey, making and selling each container of candies incurs additional variable costs of $1.10 per
unit.
The monthly fixed costs associated with making the candies include:
Master candy-maker's salary
$ 4,500
Depreciation of candy-making equipment
Salary of salesperson dedicated to this product
Total fixed costs
400
2,000
$ 6,900
The candy-making equipment does not wear out through use and it has no resale value. Assuming the company makes and sells 8,000
containers of candy, what is the financial advantage (disadvantage) of continuing to process raw honey into candies?
Multiple Choice
$(6,100)
$700
$300
$(5,700)
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