Prevatte Corporation purchases potatoes from farmers. The potatoes are then peel

Question

Prevatte 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 $43 to buy from farmers and $11 to peel in the company's plant. The peels produced from a batch can be sold as is for animal feed for $25 or processed further for $16 to make the cocktail of nutrients that are sold for $45. The depeeled spuds can be sold as is for $36 or processed further for $25 to make frozen french fries that are sold for $57.

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? Loss or Proft for drop down

b.Calculate the incremental profit (loss) per batch if the intermediate products are further processed.

c.Should each of the intermediate products, peels and depeeled spuds, be sold as is or processed further into an end product? yes or no for drop down

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? Loss or Proft for drop down

  (Click to select)LossProfit $

b.Calculate the incremental profit (loss) per batch if the intermediate products are further processed.

                                                    Cocktail of Organic Nutrients                     Frozen French Fries    Incremental Profit (loss) from further processing $      $     

c.Should each of the intermediate products, peels and depeeled spuds, be sold as is or processed further into an end product? yes or no for drop down

  Cocktail of Organic Nutrients (Click to select)YesNo      Frozen French Fries (Click to select)NoYes  

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

Part B:

Incremental Profit (loss) from further processing

Cocktail of Organic Nutrients = 45 - 25 = 20 (Profit)

Frozen French Fries = 57 - 36 = 21 (Profit)

Part C:

Cocktail of Organic Nutrients= Yes (Because it results in a profit of $4 (20 - 16 = 4)

Frozen French Fries = No (Because is results in a loss of -$4 (21 - 25 = -4)

Thanks.

Sales Value (57+45) 102 Less Total Costs
Potatoes Cost 43 Peeling Cost 11 Cost of Further Processing Peels 16 Cost of Further Depeeled Spuds 25 Profit 7

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