ACCT 202 Final: 5-06 New England (Sell or Process Coffee) (1)
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Sell or Process Further
Rise Nâ Shine Coffee Company produces Columbian coffee in batches of 6,000 pounds. The standard quantity of materials required in the process is 6,000 pounds, which cost $6 per pound. Columbian coffee can be sold without further processing for $8.4 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $10 per pound. The processing into Decaf Columbian requires additional processing costs of $8,950 per batch. The additional processing will also cause a 5% loss of product due to evaporation.
a. Prepare a differential analysis dated October 6 on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2).
| Differential Analysis | |||
| Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2) | |||
| October 6 | |||
| Sell Regular Columbian (Alternative 1) | Process Further into Decaf Columbian (Alternative 2) | Differential Effect on Income (Alternative 2) | |
| Revenues | $ | $ | $ |
| Costs | |||
| Income (Loss) | $ | $ | $ |
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a. For both products, subtract the costs from the revenue per batch. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1.
Learning Objective 1.
b. Should Rise Nâ Shine sell Columbian coffee or process further and sell Decaf Columbian?
Sell Columbian
c. Determine the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian. Round your answer to two decimal places.
$ per pound
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(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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The management of Dominican Sugar Company is considering whether to process further raw sugar into refined sugar. Refined sugar can be sold for $2.23 per pound, and raw sugar can be sold without further processing for $1.43 per pound. Raw sugar is produced in batches of 42,500 pounds by processing 100,000 pounds of sugar cane, which costs $0.36 per pound of cane. Refined sugar will require additional processing costs of $0.49 per pound of raw sugar, and 1.25 pounds of raw sugar will produce 1 pound of refined sugar.
| Required: | |
| 1. | Prepare a differential analysis as of March 24 to determine whether to sell raw sugar (Alternative 1) or process further into refined sugar (Alternative 2). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter â0â. A colon (:) will automatically appear if required. |
| 2. | Briefly report your recommendations. |
| Amount Descriptions | ||||||||||||||||||||||||||||
| Costs, per batch | ||||||||||||||||||||||||||||
| Income (Loss), per batch | ||||||||||||||||||||||||||||
| Revenues, per batch 1. Prepare a differential analysis as of March 24 to determine whether to sell raw sugar (Alternative 1) or process further into refined sugar (Alternative 2). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter â0â. A colon (:) will automatically appear if required.
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