Question

Health Foods Company sells raw snacks as well as protein bars made from raw ingredients. Health Foods currently has a large amount of dried fruit on hand, which can be sold as a raw snack food or processed further into one of its protein bars. There are 200 snack-size packages of dried fruit in the warehouse, each of which could sell for $8. On the other hand, Health Foods could process the fruit into protein bars that sell for $12 per bar. The additional processing cost for all 200 packages of fruit is $1,500, and each package of fruit can be processed into two protein bars.

Should Health Foods Company sell the packages of dried fruit or process further into protein bars?

Multiple Choice

• Sell unprocessed, because the incremental loss from processing further is $700

• Sell unprocessed, because the incremental loss from processing further is $1,700

• Process further, because the incremental profit from processing further is $700

• Process further, because the incremental profit from processing further is $1,700

Answer 1

Data Given in he question

Health food company sells two products.

1. Raw Snacks

2. Protien Bars

No Of dried fruit packages in he warehouse = 200

Each Dried fruit package can be sold in the Market =   $ 8

Each protien Bar that can be sold =  $12

Total additional processing cost =  $1500

Each package of fruit can be processed into two protein bars

Solution :

Calculation of incremental revenue by furher processing the dreid fruis to protien bars.

No of protien bars = 200 Package* 2 protien bars from each Package = 400 Protien Bars.

Selling price of each protien bar = $12

(A) Toal sales revenue = 400 protien bars * 12 = $ 4800

(B) Incremental cost for furher processing = $ 1500

(C) Total revenue (A-B) = $ 3300

(D) sales revnue forgone from Dried Fruit (200 Packs* $8) = $ 1600

(E) Total Incremental revenue from Protien Bars (C-D) = $ 1700.

We have an additional/incremental profit of $1700 for further processing the dried fruits to protien bars.

So he answer would be,

Process further, because the incremental profit from processing further is $1,700