Carmike Company can further process Product A to produce Product B. Product A is currently selling for $25 per pound and costs $10 per pound to produce. Product B would sell for $32 per pound and would require an additional cost of $10 per pound to produce. What is the differential cost of producing Product B, and should the company further process Product A into Product B?
A. $20 per pound, Yes
B. $20 per pound, No
C. $10 per pound, Yes
D. $10 per pound, No
A = $25 - $10 = ?
Additional to A's $10 per pound cost?
B = $32 - $10 - $10 = ?
Typo somewhere?
To find the differential cost of producing Product B, we need to calculate the additional cost of producing Product B compared to Product A.
The cost of producing Product A is given as $10 per pound.
For Product B, the additional cost to produce is given as $10 per pound.
Therefore, the differential cost of producing Product B is $10 per pound ($10 additional cost to produce Product B - $0 additional cost to produce Product A).
Next, we need to determine whether the company should further process Product A into Product B.
To do this, we need to compare the additional revenue from selling Product B with the differential cost of producing Product B.
The selling price of Product A is given as $25 per pound.
The selling price of Product B is given as $32 per pound.
Therefore, the additional revenue from selling Product B compared to Product A would be $32 - $25 = $7 per pound.
Since the additional revenue from selling Product B ($7 per pound) is greater than the differential cost of producing Product B ($10 per pound), it is not financially beneficial for the company to further process Product A into Product B.
Therefore, the correct answer is:
D. $10 per pound, No