Zing Roast Coffee Company produces Columbian coffee in batches of 5,300 pounds.

Question

Zing Roast Coffee Company produces Columbian coffee in batches of 5,300 pounds. The standard quantity of materials required in the process is 5,300 pounds, which cost $5.00 per pound. Columbian coffee can be sold without further processing for $8.40 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $10.00 per pound. The processing into Decaf Columbian requires additional processing costs of $8,750 per batch. The additional processing will also cause a 5% loss of product due to evaporation.

a. Prepare a differential analysis dated August 28, 2014, 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)

August 28, 2014

Sell Regular Columbian (Alternative 1)

Process Further into Decaf Columbian (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$  

$  

$  

Costs

  

  

  

Income (Loss)

$  

$  

$  

b. Should Zing Roast sell Columbian coffee or process further and sell Decaf Columbian?
SelectSell ColumbianProcess into Decaf ColumbianCorrect 1 of Item 2

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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a. Prepare a differential analysis dated August 28, 2014, 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)

August 28, 2014

Sell Regular Columbian (Alternative 1)

Process Further into Decaf Columbian (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$  

$  

$  

Costs

  

  

  

Income (Loss)

$  

$  

$  

Explanation / Answer

a. Differential analysis dated August 28, 2014, on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2) is prepared as under:

b.

Zing Roast should sell Columbian coffee and not process further and sell Decaf Columbian

c. Price of Decaf Columbian which will cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian is $10.58

Differential Analysis Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2) August 28, 2014 Sell Regular Columbian (Alternative 1) Process Further into Decaf Columbian (Alternative 2) Differential Effect on Income (Alternative 2) Revenues 44520 50350 5830 Costs 26500 35250 8750 Income (Loss) 18020 15100 -2920

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