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27.

Maxim manufactures a hamster food product called Green Health. Maxim currently has 10,000 bags of Green Health on hand. The variable production costs per bag are $2.60 and total fixed costs are $10,000. The hamster food can be sold as it is for $9.85 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,800 cost. The additional processing will yield 10,000 bags of Premium Green and 3,800 bags of Green Deluxe, which can be sold for $8.85 and $6.85 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:

$114,530.

$111,730.

$16,030.

$13,230.

$2,800.

28.

Rocko Inc. has a machine with a book value of $50,000 and a five-year remaining life. A new machine is available at a cost of $85,000 and Rocko can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced?

Yes, because income will increase by $14,000 per year.

Yes, because income will increase by $23,000 in total.

No, because the company will be $23,000 worse off in total.

No, because the income will decrease by $14,000 per year.

Rocko will be not be better or worse off by replacing the machine.

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