9-20. Dropping a Product. Dick Price, an old prospector, runs a side business. H
ID: 2584897 • Letter: 9
Question
9-20. Dropping a Product. Dick Price, an old prospector, runs a side business. He buys rattlesnakes from "snake hunters" in west Texas, paying an average of $10 per snake Each snake comes complete. He produces canned snake meat, cures hides, and makes souvenir rattles. At the end of a recent season, Dick is evaluating his financial results: Meat Hi des Rattles Total $30,000 $8,000$2,000 $40,000 1,200 24,000 $800 $16,000 $600 $7,500 5,000 $10,000 $1,500 $1,000 $12,500 Operating income (loss) $2,000 $1,700 (200 $3,500 Sales 4,800 $12,000 $3,200 $900 600 Cost of snakes 18,000 Gross profit Processing expenses $6,000 4,000 400 Common expenses Operating expense:sExplanation / Answer
1.
Inthe case of rattles, the allocation of the cost of the snake (which is a joint cost) is irrelevant because it is sunk. The common expenses are also irrelevant because it represents Jack’s living expenses, which would be incurred regardless of the sell of rattles. So, the only relevant information in the financial results for rattles are the sales revenues of $2,000 and the traced processing expenses of $600. The incremental profit from selling rattles:
$2,000 - 600 = $1,400
So, he is not losing money on rentals.
2.
Total cost of snakes is $24,000. Average cost per snake is $10. It means total 2400 snakes are purchased.
So it means total no. of rattles = 2,400
Income from sale of returns to old minus = 2,400 X $0.50
= $1,200
So if he sells rattles directly to old miner then he will gain less income by $200 ($1,400 - 1,200).
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.