Prevatte Corporation purchases potatoes from farmers. The potatoes are then peel
ID: 2380615 • Letter: P
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 $45 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 $27 or processed further for $16 to make the cocktail of nutrients that are sold for $47. The depeeled spuds can be sold as is for $38 or processed further for $27 to make frozen french fries that are sold for $59.
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 fozen french fries?
b. Should each of the intermediate products, peels and depeeled spuds, be sold as is or processed further into an end product? Explain
Explanation / Answer
a. Total cost involved in making the finished product = 45+11+16+ 27 =99
Total revenue generated from a batch of potatoes = 47 + 59 = 106
Profit made = 106-99 =$7
b) for Peeled product
if peeled product is sold as animal feed, profit = $27
if peeled product is processed further , profit = $47-16 =$31
The profit made under processing is higher, hence peels should be processed further for $16 to make the cocktail of nutrients
depeeled spuds
if depeeled spuds is sold as is, profit = $38
if depeeled spudsis processed further to make frozen french fries, profit = $59-27=$32
The profit made under processing is lower, hence depeel spuds should be sold as is.
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