(Prepared from a situation suggested by Professor John W. Hardy.) Granite City M
ID: 2476648 • Letter: #
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(Prepared from a situation suggested by Professor John W. Hardy.) Granite City Meat Processing Corporation is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as is or to process them further into filet mignon and New York cut steaks.
As mentioned above, instead of being sold as is, the T-bone steaks could be further processed into filet mignon and New York cut steaks. Cutting one side of a T-bone steak provides the filet mignon, and cutting the other side provides the New York cut. One 16-ounce T-bone steak cut in this way will yield one 5-ounce filet mignon and one 10-ounce New York cut; the remaining ounces are waste. The cost of processing the T-bone steaks into these cuts is $0.34 per pound. The filet mignon can be sold for $5.60 per pound, and the New York cut can be sold wholesale for $4.80 per pound.
Determine the profit per pound from processing the T-bone steaks further into filet mignon and New York cut steaks. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Would you recommend that the T-bone steaks be sold as is or processed further?
(Prepared from a situation suggested by Professor John W. Hardy.) Granite City Meat Processing Corporation is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as is or to process them further into filet mignon and New York cut steaks.
Management believes that a 1-pound T-bone steak would yield the following profit:Explanation / Answer
1)
Cost per lb = $2.40 + $0.34 = $2.74
Sell Price = 6 ounce Fillet @ $5.60 * 5/16 = $1.75
8 ounce NY cut @ $4.80 * 10/ 16 = $3
Total = $1.75+ $3 = $4.75
Profit per pound from the processing = $4.75 - $2.74 = $2.01
2)
T-bone steaks should be processed further. Because processing will make an extra profit of $0.61 ($2.01 - 1.40)
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