Chocolite processes cocoa beans into cocoa powder at a processing
Chocolite processes cocoa beans into cocoa powder at a processing cost of $10,000 per batch. Chocolite can sell the cocoa powder as is, or it can process the cocoa powder further into chocolate syrup or boxed assorted chocolates. Once processed, each batch of cocoa beans would result in the following sales revenue:
Cocoa powder....................................................................................... $ 15,000
Chocolate syrup.................................................................................... $100,000
Boxed assorted chocolates................................................................... $200,000
The cost of transforming the cocoa powder into chocolate syrup is $70,000. Likewise, the company would incur $180,000 to transform the cocoa powder into boxed chocolates. The company president has decided to make boxed chocolates owing to its high sales value and to the fact that the $10,000 cost of processing cocoa beans “eats up” most of the cocoa powder profits. Has the president made the right or wrong decision? Explain your answer. Be sure to include the correct financial analysis in your response.
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