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.

Question

Lesly Barajas

Business

18 April, 09:41

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.

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Gates · 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