(Prepared from a situation suggested by Professor John W. Hardy.) Granite City M

Question

(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 4.50 Wholesale selling price ($4.50 per pound) Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product 3.85 Profit per pound $0.65 As mentioned above, instead of being sold as is, the T-bone steaks could be further p mignon and New York cut steaks. Cutting one side of a T-bone steak provides the f the other side provides th filet mignon and one 9-ounce New York cut; the remaining ounces are waste. The cost of processing the T bone steaks into these cuts is S0.25 per pound. The filet mignon can be sold for $6.40 per pound, and the New York cut can be sold wholesale for $5.60 per pound rocessed into filet filet mignon, and cutting e New York cut. One 16-ounce T-bone steak cut in this way will yield one 5-ounce Required 1. 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.) t per poun essin rther 2. Would you recommend that the T-bone steaks be sold as is or processed further? O T-bone steaks should be solo O T-bone steaks should be processed further

Explanation / Answer

Per 16-Ounce T-Bone Sales from further processing: Sales price of one filet mignon 2.00 =6.4/16*5 Sales price of one New York cut 3.15 =5.6/16*9 Total revenue from further processing 5.15 Less sales revenue from one T-bone steak 4.5 Incremental revenue from further processing 0.65 Less cost of further processing 0.25 Profit per pound from further processing 0.40 2 The T-bone steaks should be processed further into the filet mignon and the New York cut

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