10 Check my work Problem 12-20 Sell or Process Further Decision [LO12-7] (Prepar

Question

10 Check my work Problem 12-20 Sell or Process Further Decision [LO12-7] (Prepared from a sltuation suggested by Professor John W. Hardy.) Lone Star Meat Packers 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 they are Initially cut or to process them further Into filet mignon and the New York cut. If the T-bone steaks are sold as Initially cut, the company figures that a 1-pound T-bone steak would yleld the following profit ok nt $ 2.40 Selling price ($2.48 per pound) Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product Profit per pound 1.65 8.75 If the company were to further process the T-bone steaks, then 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 yleld one 6-ounce filet mignon and one 8-ounce New York cut, the remalning ounces are waste. It costs $017 to further process one T-bone steak Into the filet mignon and New York cuts. The filet mignon can be sold for $3.60 per pound, and the New York cut can be sold for $3.40 per pound. Requlrec 1. What is the financlal advantage (disadvantage) of further processing one T-bone steak Into filet mignon and New York cut steaks? 2. Would you recommend that the T-bone steaks be sold as Initially cut or processed further? Complete this question by entering your answers in the tabs below Required 1Required 2 What is the financial advantage (disadvantage) of further processing one T-bone steak into filet mignon and Ne steaks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) per unit Reference links er

Explanation / Answer

1) Sales revenue from further processing: Price of one filet mignor of 6 ounces = 3.6*6/16 = $         1.35 Price of one New York Cut = 3.4*8/16 = $         1.70 Total revenue from processing 1 pound of T Bone steak $         3.05 Less: Sales revenue from one T-Bone steak (sold without further processing) $         2.40 Incremental revenue from further processing $         0.65 Less: Cost of further processing $         0.17 Incremental profit per pound from futher processing $         0.48 Financial advantage of further processing one T-bone steak = $         0.48 2) Recommend further processing due to the financial advantage.

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