Exercise 17.13 Sell or Process Further, Basic Analysis The revenues from each pr
ID: 2462214 • Letter: E
Question
Exercise 17.13
Sell or Process Further, Basic Analysis
The revenues from each product are as follows: sirloin roasts, $68,000; chops, $71,000; spare ribs, $33,000; and residual, $9,800.
Carleigh’s management has learned that certain organ meats are a prized delicacy in Asia. They are considering separating those from the residual and selling them abroad for $52,000. This would bring the value of the residual down to $2,650. In addition, the organ meats would need to be packaged and then air freighted to Asia. Further processing cost per week is estimated to be $27,500 (the cost of renting additional packaging equipment, purchasing materials, and hiring additional direct labor). Transportation cost would be $12,100 per week. Finally, resource spending would need to be expanded for other activities as well (purchasing, receiving, and internal shipping). The increase in resource spending for these activities is estimated to be $3,120 per week.
Required:
1. What is the gross profit earned by the original mix of products for one week?
$
2. Should the company separate the organ meats for shipment overseas or continue to sell them at split-off?
- Select your answer -Separate the organ meats for shipment overseasContinue to sell them at split-offItem 2
What is the effect of the decision on weekly gross profit?
- Select your answer -IncreaseDecreaseItem 3 by $
Exercise 17.13
Sell or Process Further, Basic Analysis
Carleigh, Inc., is a pork processor. Its plants, located in the Midwest, produce several products from a common process: sirloin roasts, chops, spare ribs, and the residual. The roasts, chops, and spare ribs are packaged, branded, and sold to supermarkets. The residual consists of organ meats and leftover pieces that are sold to sausage and hot dog processors. The joint costs for a typical week are as follows:
The revenues from each product are as follows: sirloin roasts, $68,000; chops, $71,000; spare ribs, $33,000; and residual, $9,800.
Carleigh’s management has learned that certain organ meats are a prized delicacy in Asia. They are considering separating those from the residual and selling them abroad for $52,000. This would bring the value of the residual down to $2,650. In addition, the organ meats would need to be packaged and then air freighted to Asia. Further processing cost per week is estimated to be $27,500 (the cost of renting additional packaging equipment, purchasing materials, and hiring additional direct labor). Transportation cost would be $12,100 per week. Finally, resource spending would need to be expanded for other activities as well (purchasing, receiving, and internal shipping). The increase in resource spending for these activities is estimated to be $3,120 per week.
Required:
1. What is the gross profit earned by the original mix of products for one week?
$
2. Should the company separate the organ meats for shipment overseas or continue to sell them at split-off?
- Select your answer -Separate the organ meats for shipment overseasContinue to sell them at split-offItem 2
What is the effect of the decision on weekly gross profit?
- Select your answer -IncreaseDecreaseItem 3 by $
Explanation / Answer
Ans Increase of Gross Profit
a) Gross Profit Products Sales Value of total production Weighting Joint Cost Allocation of Joint cost Gross profit Sirlon Roast 68000 68/181.8 0.37404 107400 40172 27828 Chops 71000 71/181.8 0.39054 107400 41944 29056 Spare ribs 33000 33/181.8 0.18152 107400 19495 13505 Residual 9800 9.8/181.8 0.05391 107400 5789 4011 181800 107400 74400 Total Sales 181800 Less: COGS 107400 Gross profit 74400 Ans ans 2 If organ meet is further processed Products Sales Value of total production at splitt off point Weighting Joint Cost Allocation of Joint cost Gross profit Sirlon Roast 68000 68/181.8 0.37404 107400 40172 27828 Chops 71000 71/181.8 0.39054 107400 41944 29056 Spare ribs 33000 33/181.8 0.18152 107400 19495 13505 Organ Meat (9800-2650) 7150 7.2/181.8 0.039604 107400 4253 2897 Residual 2650 2.6/181.8 0.014301 107400 1536 1114 181800 107400 74400 Seprate cost for organ meet 27500+12100+3120 42720 So for taking a decision we have to see incremental revenue and incremental cost for organ meat Incremental Revenue (52000-7150) 44850 Incremental Cost 42720 Increase in profit due to further processing 2130 Ans Seprate the organ meet for shipment processAns Increase of Gross Profit
$2,130Related Questions
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