(Prepared from a situation suggested by Professor John W.Hardy.) Lone Star Meat Packers is a major processor of beef andother meat products. The company has a large amount of T-bone steakon hand, and it is trying to decide whether to sell the T-bonesteaks as they are initially cut or to process them further intofilet mignon and the New York cut.
If the T-bone steaks aresold as initially cut, the company figures that a 1-pound T-bonesteak would yield the following profit:
Selling price ($2.00per pound) $ 2.00 Less joint costsincurred up to the split-off point where
T-bone steak can be identified as aseparate product 1.70 Profit perpound $ 0.30
As mentioned above, instead ofbeing sold as initially cut, the T-bone steaks could be furtherprocessed into filet mignon and New York cut steaks. Cutting oneside of a T-bone steak provides the filet mignon, and cutting theother side provides the New York cut. One 16-ounce T-bone steak cutin this way will yield one 6-ounce filet mignon and one 8-ounce NewYork cut; the remaining ounces are waste. The cost of processingthe T-bone steaks into these cuts is $0.12 per pound. The filetmignon can be sold for $3.60 per pound, and the New York cut can besold for $3.90 per pound.
Required:
1. Determine the profit per pound from processing the T-bone steaksinto filet mignon and New York cut steaks. (Do not roundintermediate calculations. Round your answers to 2 decimalplaces.)
Per 16-Ounce T-Bone Salesfrom further processing: Salesprice of one filet mignon Salesprice of one New York cut Totalrevenue from further processing Lesssales revenue from one T-bone steak Incremental revenue from further processing Less costof further processing Profit(loss) per pound fromfurther processing
2. Would you recommend that the T-bone steaks be sold as initiallycut or processed further?
(Prepared from a situation suggested by Professor John W.Hardy.) Lone Star Meat Packers is a major processor of beef andother meat products. The company has a large amount of T-bone steakon hand, and it is trying to decide whether to sell the T-bonesteaks as they are initially cut or to process them further intofilet mignon and the New York cut. |
| If the T-bone steaks aresold as initially cut, the company figures that a 1-pound T-bonesteak would yield the following profit: |
| Selling price ($2.00per pound) | $ | 2.00 |
| Less joint costsincurred up to the split-off point where T-bone steak can be identified as aseparate product | 1.70 | |
| Profit perpound | $ | 0.30 |
| As mentioned above, instead ofbeing sold as initially cut, the T-bone steaks could be furtherprocessed into filet mignon and New York cut steaks. Cutting oneside of a T-bone steak provides the filet mignon, and cutting theother side provides the New York cut. One 16-ounce T-bone steak cutin this way will yield one 6-ounce filet mignon and one 8-ounce NewYork cut; the remaining ounces are waste. The cost of processingthe T-bone steaks into these cuts is $0.12 per pound. The filetmignon can be sold for $3.60 per pound, and the New York cut can besold for $3.90 per pound.
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