Question

Paola Farms, Inc. produces a crop of chickens at a total cost of $66,000. The production generates 60,000 chickens which can be sold for $1 each to a slaughtering company, or the chickens can be slaughtered in house and then sold for $2.75 each. It costs $65,000 more to turn the annual chicken crop into chicken meat. If Paola Farms slaughters the chickens, determine how much incremental profit or loss it would report.

Answer 1

Answer: $40,000 incremental profit

Explanation:

Total Revenue if they sell the chickens as is to a slaughter house is,

= 60,000 * 1

= $60,000

If they decide to slaughter the chickens themselves then we have the following revenue

= 2.75 (selling price) * 60,000 chickens - 65,000 ( cost to turn into meat)

= $100,000

That's the profit if they process further. To get the Incremental Profit we subtract the profit if they just sell to the Slaughter house.

= 100,000 - 60,000

= $40,000

The Incremental profit if Paola Slaughters chickens is, $40,000