Assume a company purchases honeycombs from beekeepers for $2.00 a pound. The honey can be sold in raw form for $3.20 a pound or it can be used to make honey drop candies. Each package of candies contains three-quarters of a pound of honey and can be sold for $4.40. In addition to the cost of the honey, making and selling each container of candies incurs additional variable costs of $1.10 per unit.
The monthly fixed costs associated with making the candies include:
Master candy-maker’s salary $ 3,880
Depreciation of candy-making equipment 400
Salary of salesperson dedicated to this product 2,000
Total fixed costs $ 6,280
What is the incremental contribution margin earned by the company when it processes raw honey into one container of candies?
Multiple Choice
$0.70
$0.90
$0.50
$0.10
