Question

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)

Answer 1