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 Depreciation of candy-making equipment Salary of salesperson dedicated to this product Total fixed costs $ 4,500 400 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?
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 Depreciation of candy-making equipment Salary of salesperson dedicated to this product Total fixed costs $ 4,500 400 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?
Chapter15: Managing Short-term Assets
Section: Chapter Questions
Problem 19PROB
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Transcribed Image Text:COTB MC Qu. 13-55 (Algo) Assume a company purchases honeycombs from...
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
Depreciation of candy-making equipment
Salary of salesperson dedicated to this product
Total fixed costs
$ 4,500
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?
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