Heavenly Dessert processes cocoa beans into cocoa powder at a processing cost of $9,500 per batch. Heavenly Dessert can sell the cocoa powder as is, or it can process the cocoa powder further into either chocolate syrup or boxed assorted chocolates. Once processed, each batch of cocoa beans would result in the following sales revenue: 1(Click the icon to view the sales revenue amounts and additional information.) Has the president made the right or wrong decision? Explain your
Heavenly Dessert processes cocoa beans into cocoa powder at a processing cost of $9,500 per batch. Heavenly Dessert can sell the cocoa powder as is, or it can process the cocoa powder further into either chocolate syrup or boxed assorted chocolates. Once processed, each batch of cocoa beans would result in the following sales revenue: 1(Click the icon to view the sales revenue amounts and additional information.) Has the president made the right or wrong decision? Explain your
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Heavenly Dessert
processes cocoa beans into cocoa powder at a $9,500
per batch.
Heavenly Dessert
can sell the cocoa powder as is, or it can process the cocoa powder further into either chocolate syrup or boxed assorted chocolates. Once processed, each batch of cocoa beans would result in the following sales revenue:1(Click
the icon to view the sales revenue amounts and additional information.)Has the president made the right or wrong decision? Explain your answer. Be sure to include the correct financial analysis in your response.
Begin by completing the following incremental analysis to compare selling the cocoa powder as is with processing it further. (For amounts with a value of $0, make sure to enter "0" in the appropriate input box.)
|
Sell as Cocoa Powder
|
Sell as Chocolate Syrup
|
Sell as Boxed Assorted Chocolates
|
---|---|---|---|
Revenue
|
|
|
|
Less: Additional processing costs
|
|
|
|
Net benefit
|
|
|
|
Has the president made the right or wrong decision? Explain your answer.
The president has made the
decision. Based on the analysis above, the company would realize the highest profits by
(1)
(2)
1: Data Table
Cocoa powder
|
$13,500
|
---|---|
Chocolate syrup
|
96,000
|
Boxed assorted chocolates
|
194,000
|
The cost of transforming the cocoa powder into chocolate syrup would be
$65,000.
Likewise, the company would incur a cost of
$177,000
to transform the cocoa powder into boxed assorted chocolates. The company president has decided to make boxed assorted chocolates due to its high sales value and to the fact that the cocoa bean processing cost of
$9,500
eats up most of the cocoa powder profits.(1)
right
wrong
(2)
processing the cocoa powder into boxed chocolates.
processing the cocoa powder into chocolate syrup.
selling the cocoa powder as is.
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