Question

A chemical company spent $ 530 comma 000 to produce 150 comma 000 gallons of a chemical that can be sold for $ 5.00 per gallon. This chemical can be further processed into a weed killer that can be sold for $ 7.20 per gallon. It will cost $ 260 comma 000 to process the chemical into the weed killer. Which of the following is​ true A) If the company decides to process it further, it will increase operating income$578,000

B) If the company decides to process it further, it will increase operating income $390,000

C) If the company decides to process it further, it will decrease operating income by $1,380,000

D) To maximize operating income, the company should continue to sell the chemical as is.

Answer 1

None of the provided options (A-D) are correct. If the chemical company processes the chemical further into weed killer, it will increase operating income by $70,000, which makes further processing financially beneficial.

Step-by-step explanation:

The question at hand involves determining the financial outcomes of further processing a chemical into a weed killer for a chemical company. To solve this problem, we need to calculate the difference in operating income from selling the chemical as is versus selling it after further processing into the weed killer.

Let's start with the revenue without further processing: 150,000 gallons × $5.00/gallon = $750,000.

The additional cost of processing into weed killer is $260,000, and it increases the selling price to $7.20 per gallon. The new revenue with further processing will be: 150,000 gallons × $7.20/gallon = $1,080,000.

The increase in operating income from further processing can be found by subtracting the initial revenue and additional processing costs from the new revenue. Increase in operating income = New revenue - (Initial revenue + Additional processing costs) = $1,080,000 - ($750,000 + $260,000) = $1,080,000 - $1,010,000 = $70,000.

This means that further processing will increase operating income by $70,000, which means none of the provided options (A-D) are correct. Therefore, it is financially beneficial for the company to process the chemical further into weed killer to maximize operating income.

Answer 2

If the company decides to process it further, it will increase operating income $68,000

Step-by-step explanation:

Selling the chemical on processing,

the Sales will be = Gallons of chemical produce × Selling price per gallon

= 150,000 × $5

= $750,000

Cost of Processing the chemical = $530,000

Operating Income on selling the chemical:

= Sales - Cost of Processing the chemical

= $750,000 - $530,000

= $220,000

Total cost incurred to process the chemical into a weed killer:

= Cost of Processing the chemical +

= $532000 + $260,000

= $792,000

Sales of 150,000 gallons of weed killer:

= Selling price per gallon × Chemical produce

= $7.20 × 150,000 gallons

= $1,080,000

Operating income on processing to weed killer:

= Sales of 150,000 gallons of weed killer - Total cost incurred to process the chemical into a weed killer

= $1,080,000 - $792,000

= $288,000

So, If the company decides to process it further, it will increase operating income by:

= Operating income on processing to weed killer - Operating Income on selling the chemical

= $288,000 - $220,000

= $68,000