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If Blossom processes the milk into ice cream how much is the incremental profit or loss

Blossom Inc. produces milk at a total cost of $81840. The production generates 74,400 gallons of milk which can be sold for $1 per gallon to a pasteurization company, or the milk can be processed further into ice cream and then sold for $3 per gallon. It costs $93,000 more to turn the annual milk supply into ice cream.

a) If Blossom processes the milk into ice cream, how much is the incremental profit or loss?

b) Should Blossom process the milk into ice cream or sell it as is?

Answer:

 a) Incremental profit  $55,800
b) Blossom should process the milk into ice cream.

Explanation

Milk Sale Profit (Loss) = ($1 x 74,400 ) - $81,840 = $(7,440) Loss
Ice-cream sale- Incremental profit (Loss) = ($3 x 74,400) - ($81,840 + 93,000) - $7,440 = $55,800 

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