Problem 12-20 Sell or Process Further Decision [L012-7 (Prepared from a situatio
ID: 2523620 • Letter: P
Question
Problem 12-20 Sell or Process Further Decision [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 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 $ 2.20 1.35 $ 0.85 Selling price ($2.20 per pound) Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product Profit per pound lf the company were to urther process the T-bone steaks, then cutting one side of a T-bone steak rovides the et mignon and cutting the other side pro des the ew York cut. One! 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 $0.13 to further process one T-bone steak into the filet mignon and New York cuts. The filet mignon can be sold for $4.00 per pound, and the New York cut can be sold for $3.80 per pound. Required 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 1 Required 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 unitExplanation / Answer
1 Per 16-Ounce T-Bone Sales from further processing: Sales price of one filet mignon 1.5 =4/16*6 Sales price of one New York cut 1.9 =3.8/16*8 Total revenue from further processing 3.4 Less sales revenue from one T-bone steak 2.2 Incremental revenue from further processing 1.2 Less cost of further processing 0.13 Profit per pound from further processing 1.07 per unit 2 The T-bone steaks should be processed further