Pork Processors Co. is considering offering three new pork products. The relevan

Question

Pork Processors Co. is considering offering three new pork products. The relevant cost data for the products follows: Product Sales Revenue if sold at split-off Sales Revenue if Processed Further Further Processing costs Chops $                     100,000 $                     200,000 $                       80,000 Head 20000 40000 25000 Belly 50000 60000 5000 The chops can be brined and smoked and sold as breakfast steaks. The belly can be smoked and sold as bacon and the head can be boiled and sold as head cheese. Which of these products should be processed further and which should be sold at the split-off point. Support your decisions with calculations. Chops Head Belly Revenue if processed further Revenue if sold at split off Incremental revenue $                                 -   $                                 -   $                                 -   Less incremental costs 80000 25000 5000 operating income (loss) from $    $    $    processing further Pork Processors Co. is considering offering three new pork products. The relevant cost data for the products follows: Product Sales Revenue if sold at split-off Sales Revenue if Processed Further Further Processing costs Chops $                     100,000 $                     200,000 $                       80,000 Head 20000 40000 25000 Belly 50000 60000 5000 The chops can be brined and smoked and sold as breakfast steaks. The belly can be smoked and sold as bacon and the head can be boiled and sold as head cheese. Which of these products should be processed further and which should be sold at the split-off point. Support your decisions with calculations. Chops Head Belly Revenue if processed further Revenue if sold at split off Incremental revenue $                                 -   $                                 -   $                                 -   Less incremental costs 80000 25000 5000 operating income (loss) from $    $    $    processing further

Explanation / Answer

As shown above, there is profit on the further processing of chop & belly. So both should be further processed and sold. However, in case of head, there is loss on further processing. So hed should be sold at split off point

Particulars Chops Head Belly Incremental Revnue 100000 20000 10000 Less: Incremental Cost 80000 25000 5000 Incremental Profit 20000 (5000) 5000

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