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 $ 3,550 Depreciation of candy-making equipment 400 Salary of salesperson dedicated to this product 2,000 Total fixed costs $ 5,950 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   $(5,150)   $(4,750)   $1,650   $1,250

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 $ 3,550
Depreciation of candy-making equipment 400
Salary of salesperson dedicated to this product 2,000
Total fixed costs $ 5,950

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
  •  
    $(5,150)
  •  
    $(4,750)
  •  
    $1,650
  •  
    $1,250
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