Question

Heavenly Dessert processes cocoa beans into cocoa powder at a processing cost of \(9,700 per batch. Heavenly Dessert can sell the cocoa powder as is, or it can process the cocoa powder further into either chocolate syrup or boxed assorted chocolates. Once processed, each batch of cocoa beans would result in the following sales revenue:

Cocoa powder \)14,500

Chocolate syrup 103,000

Boxed assorted chocolates 204,000

The cost of transforming the cocoa powder into chocolate syrup would be \(72,000. Likewise, the company would incur a cost of \)183,000 to transform the cocoa powder into boxed assorted chocolates. The company president has decided to make assorted boxed chocolates due to their high sales value and to the fact that the cocoa bean processing cost of $9,700 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.

Short answer

The president’sdecision of making boxed assorted chocolatesis wrong.

Step-by-step solution

Meaning of Financial Analysis

Financial analysis refers to a technique used by business entities to determine the benefits of choosing a particular item amongst the available alternatives. Such an analysis considers thecost and revenue associated with a particular set of data.

Preparation of financial analysis

Particulars	Chocolate syrup	Boxed assorted chocolate
Processed sales revenue	$103,000	$204,000
Less: Sales revenue of cocoa powder	($14,500)	($14,500)
Revenue generated	$88,500	$189,500
Less: Processing cost	($72,000)	($183,000)
Income	$16,500	$6,500

Comment on the president’s decision  

According to the financial analysis shown above, the decision made by the president to make boxed assorted chocolates is not correct.

If the president wants to maximize profits, then he shouldshift his focus to chocolate syrup instead of boxed assorted chocolates.