Swagger Corporation purchases potatoes from farmers. The potatoes are then peele
ID: 2581761 • Letter: S
Question
Swagger Corporation purchases potatoes from farmers. The potatoes are then peeled, producing two intermediate products-peels and depeeled spuds.
The peels can then be processed further to make a cocktail of organic nutrients. And the depeeled spuds can be processed further to make frozen french fries.
A batch of potatoes costs $46 to buy from farmers and $12 to peel in the company's plant.
The peels produced from a batch can be sold as is for animal feed for $28 or processed further for $17 to make the cocktail of nutrients that are sold for $48.
The depeeled spuds can be sold as is for $39 or processed further for $28 to make frozen french fries that are sold for $60.
Required:
a. Assuming that no other costs are involved in processing potatoes or in selling products, how much money does the company make from processing one batch of potatoes into the cocktail of organic nutrients and frozen french fries?
b. Should each of the intermediate products, peels and depeeled spuds, be sold as is or processed further into an end product?
Profit LossExplanation / Answer
Swagger Corporation A Analysis of the profitability of the overall operation: Combined final sales value (48+60) 108 Less costs of producing the end products: Cost of potatoes 46 Cost of peeling 12 Cost of further processing peels 17 Cost of further processing depeeled spuds 28 103 Profit (loss) 5 b Analysis of sell or process further: Cocktail of Organic Nutrients Frozen French Fries Final sales value after further processing 48 60 Less sales value at split-off point 28 39 Incremental revenue from further processing 20 21 Less cost of further processing. 17 28 Profit (loss) from further processing 3 -7 The cocktail of organic nutrients should be produced, but not the frozen french fries.
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