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Mathematical Profit or Loss

A factory processes raw honey into syrup and "simple" cola.

A batch consists of 10,000 gallons of honey, costing $7,000.

Processing costs are $40,000, and results in 8,000 gallons of syrup and 2,000 gallons of "simple" cola.

Raw material and processing costs are allocated to the two products (Syrup and "Simple" Cola) based on number of gallons.

Syrup can be sold for $7 a gallon.

"Simple" cola can be sold for $2 a gallon or it can be processed into "Premium" cola.

"Premium" cola can be sold for $3.50 a gallon.

Additional processing costs for a batch of "Premium" cola are $2,100.

Question: Should the factory produce "simple" cola or "Premium" cola (please include all accounting/math steps in answer)?

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Solution Preview

10,000 gallons of raw honey costs $7000 and has a processing cost of $40,000. It produces 2000 gallons of simple cola at a rate of $2 per gallon. This would mean that (2,000 ...

Solution Summary

Discussion of how to calculate whether or not a company is profitting from a mathetical practice.