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Marsden manufactures a cat food product called Special Export. Marsden currently has 10,000 bags of Special...

Marsden manufactures a cat food product called Special Export. Marsden currently has 10,000 bags of Special Export on hand. The variable production costs per bag are $1.80 and total fixed costs are $10,000. The cat food can be sold as it is for $9.00 per bag or be processed further into Prime Cat Food and Feline Surprise at an additional $2,000 cost. The additional processing will yield 10,000 bags of Prime Cat Food and 3,000 bags of Feline Surprise, which can be sold for $8 and $6 per bag, respectively. Required:

(1) If Special Export is processed further into Prime Cat Food and Feline Surprise, calculate the total gross profit for Marsden. (6 marks)

(2) Should Marsden sell Special Export or Process further? Support your answer with calculation detail. (6 marks)

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Answer #1

1) Total gross profit for Marsden- Particulars Sales (10000 bags 8 per bag)+(3000 bags *6 per bag) Less: Variable cost (10000*1.80) Less: Fixed cost Less: Additional processing costs Gross Profit Amount S 98,000 (18,000) (10,000) (2,000) 68,000 2) Deciding on whether Special Export or Process further Particulars Sale as it is (10,000 at S 9.00) Processing further ((10,000 units x S8) (3,000 units x S6) S2,000 Incremental income to process further Amount S 90,000 96,000 6,000 Marsden should process further as it generates a higher income of S 6,000/

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