Chap 12 QZ (QUESTION 8) Swagger Corporation purchases potatoes from farmers. The

Question

Chap 12 QZ (QUESTION 8)

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 $42 to buy from farmers and $10 to peel in the company's plant. The peels produced from a batch can be sold as is for animal feed for $24 or processed further for $15 to make the cocktail of nutrients that are sold for $44. The depeeled spuds can be sold as is for $35 or processed further for $24 to make frozen french fries that are sold for $56.

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?

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?

Required B

Should each of the intermediate products, peels and depeeled spuds, be sold as is or processed further into an end product? (Negative amounts should be indicated by a minus sign.)

Required B

Should each of the intermediate products, peels and depeeled spuds, be sold as is or processed further into an end product? (Negative amounts should be indicated by a minus sign.)

Explanation / Answer

Answer a. Analysis of the Profitability of the Overall Operation Combined Final Sales Value - ($44 + $56)                    100 Less: Cost of Producing the end Products Cost of Potatoes                          42 Cost of Peeling                          10 Cost of further processing peels                          15 Cost of further processing depeeled spuds                          24                      91 Profit (loss)                        9 Answer b. Cocktail of Organic Nutrients Frozen French Fries Final Sales Value after further processing                          44                      56 Less: Sales Value at Split-off Point                          24                      35 Incremental Revenue from Further Processing                          20                      21 Less: Cost of Further Processing                          15                      24 Profit (Loss) from further processing                            5                      (3) Process Further Don't Process Further

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