Sell or Process Further Abica Roast Coffee Company produces Colomblian coffee in

Question

Sell or Process Further Abica Roast Coffee Company produces Colomblian coffee in batches of 5,000 pounds. The standard quantity of materials required in the process is 5,000 pounds, which cost $5.00 per pound. Colomblan coffee can be sold without further processing for $9.40 per pound Color a coffee can also be processed further to yield De af Colombian hich can be sold fo $12.00 per pound. The processing into Decaf Colombia equires additional processing costs of $10,050 per batch. The addRi el processi g wil a so couse 6% loss of product due to evaporation Hide a. Prepare a differential analysis report for the decision to sell or process further, Enter all amounts as positive numbers. Abica Roast Coffee Company Proposal to Process Colombian Coffee Further Differential revenue from further processing per batch: Revenue from sale of Decaf Colombian Revenue from sale of Colombian coffee Differential revenue Differential cost per Additional cost of producing Decaf Colambian oss fre Decaf Colombian per batclh Partially Correet a. Follow Exhibit 9 in the text. For both products, subtract the costs from the ravenucs. Determine the diffcrential offect on income of the revenucs, costs, and income (losa) b. Should Abica Coffee sel Colombian coffee or process further end sell Decef Colombian? Sell Colombian coffee e Determine the price of Decaf Colombian that would cause neither an advantage nor a disadvantage for processing further and seling Decaf Colombian Round your answer to the nearest cent. per pound

Explanation / Answer

c)Total revenue to be earned at indifference point =revenue at split off +additional cost

       = 47000+10050

          = 57050

price = 57050 /4700 =$ 12.14

**units = 5000(1-.06) =4700

Differential revenue from further processing revenue from further processing [5000* (1-.06)*12 ] 56400 Revenue at split off [5000*9.4] (47000) Differential revenue 9400 Additional cost processing (10050) Loss due to further processing (650)

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