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)?
This question was answered on: Sep 16, 2020
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