4 Problem 12-20 Sell or Process Further Declslon [L012-7] (Prepared from a situa

ID: 2579324 • Letter: 4

Question

4 Problem 12-20 Sell or Process Further Declslon [L012-7] (Prepared from a situation 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. 10 points · If the T-bone steaks are sold as initially cut, the company figures that a 1-pound T-bone steak would yield the following profit eBook Selling price ($2.28 per pound) Less joint costs incurred up to the split-off point where $ 2.28 T-bone steak can be identified as a separate product Profit per pound 1.68 s 8.68 Print 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 yield one 6-ounce filet mignon and one 8-ounce New York cut; the remaining ounces are waste. It costs $0.17 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 $2.90 per pound. Requlred: 1. What is the financial 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 New York cut steaks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) per unit

Explanation / Answer

Requirement: 1

Per 1 pound or 16 ounce T-Bone

Sales from Further Processing

Sales price of filet mignon

$1.35

Sales price of New York cut

$1.45

Total revenue from further processing

$2.80

Less: Sales revenue from T- bone steak

$2.20

Incremental revenue from further processing

$0.60

Less: Cost of further processing

$0.17

Profit per pound from further processing

$0.43

Sales price of 6 ounce filet mignon = 6/16 pound x $ 3.6 = 0.375 x $ 3.6 = $ 1.35

Sales price of 8 ounce New York cut = 8/16 pound x $ 2.9 = 0.5 x $ 3.6 = $ 1.45

Requirement 2:

T-bone steak is should be further processed as there is a profit for further processing.