1. Maxim has already spent $30,500 to manufacture a hamster food product called Green Health....
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1. Maxim has already spent $30,500 to manufacture a hamster food product called Green Health. Maxim currently has 10,000 bags of Green Health on hand that can be sold for $94,160. Alternatively, Maxim can process it further into a different product, Premium Green, at an additional cost of $6,325. If Maxim processes further, the Premium Green can be sold for $102,550. The incremental income to process further is:
Multiple Choice
a. $8,390.
b. $(8,390).
c. $2,065.
d. $(2,065).
e. $3,065.
2.
Epsilon Company can produce a unit of product for the following costs:
Direct material
$ 7.40
Direct labor
23.40
Overhead
37.00
Total product costs per unit
$ 67.80
An outside supplier offers to provide Epsilon with all the units it needs at $60.70 per unit. If Epsilon buys from the supplier, the company will still incur 30% of its overhead. Epsilon should choose to:
a. Buy since the relevant cost to make it is $67.80.
b. Make since the relevant cost to make it is $56.70.
c. Buy since the relevant cost to make it is $41.90.
d. Make since the relevant cost to make it is $41.90.
e. Buy since the relevant cost to make it is $56.70.
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