6. Tranquili-Tea produces tea including green tea and Sleepy green tea blend. Green tea costs $16...

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6. Tranquili-Tea produces tea including green tea and Sleepy green tea blend. Green tea costs $16 a pound to make and sells for $20 a pound. A small portion of green tea is combined with several other ingredients and further processed into the Sleepy green tea blend. The Sleepy green tea blend sells for $40 per bag. This further processing requires 4 pound of green tea per bag of Sleepy green tea blend. The additional variable manufacturing costs per bag of Sleepy green tea blend are: Other ingredients Direct labor Additional variable manufacturing cost Overhead costs associated with processing the tea blend are: Variable manufacturing overhead cost Fixed manufacturing overhead cost (per year): Production supervisor Depreciation of mixing equipment $6.50 $14.80 $21.30 25% of direct labor cost $30,000 $14,000 The production supervisor has no duties other than overseeing production of the Sleepy green tea blend. The mixing equipment is special-purpose equipment acquired specifically to produce the Sleepy green tea blend. It can produce up to 15,000 bags of the tea blend per month. Its resale value is negligible, and it does not wear out through use. Advertising costs for the Sleepy green tea blend total $40,000 per month. Variable selling costs for the tea blend are 7.5% of sales. Due to a decline in the demand for tea blends, the company is considering selling all of its green tea for $2 per pound and discontinuing the Sleepy green tea blend. a. How much incremental revenue does the company earn per bag of the tea blend by further processing green tea rather than selling it as is? [A4] b. How much incremental contribution margin does the company earn per bag of tea blend by further processing green tea rather than selling it as is? [A4] 6. Tranquili-Tea produces tea including green tea and Sleepy green tea blend. Green tea costs $16 a pound to make and sells for $20 a pound. A small portion of green tea is combined with several other ingredients and further processed into the Sleepy green tea blend. The Sleepy green tea blend sells for $40 per bag. This further processing requires 4 pound of green tea per bag of Sleepy green tea blend. The additional variable manufacturing costs per bag of Sleepy green tea blend are: Other ingredients Direct labor Additional variable manufacturing cost Overhead costs associated with processing the tea blend are: Variable manufacturing overhead cost Fixed manufacturing overhead cost (per year): Production supervisor Depreciation of mixing equipment $6.50 $14.80 $21.30 25% of direct labor cost $30,000 $14,000 The production supervisor has no duties other than overseeing production of the Sleepy green tea blend. The mixing equipment is special-purpose equipment acquired specifically to produce the Sleepy green tea blend. It can produce up to 15,000 bags of the tea blend per month. Its resale value is negligible, and it does not wear out through use. Advertising costs for the Sleepy green tea blend total $40,000 per month. Variable selling costs for the tea blend are 7.5% of sales. Due to a decline in the demand for tea blends, the company is considering selling all of its green tea for $2 per pound and discontinuing the Sleepy green tea blend. a. How much incremental revenue does the company earn per bag of the tea blend by further processing green tea rather than selling it as is? [A4] b. How much incremental contribution margin does the company earn per bag of tea blend by further processing green tea rather than selling it as is? [A4]