My company mines an iron ore called Alpha. During the month of December, 400,000
ID: 2442872 • Letter: M
Question
My company mines an iron ore called Alpha. During the month of December, 400,000 tons of Alpha were mined and processed at a cost of $742,500. As the Alpha ore is mined, it is processed into Delta and Pi, were 60% of the Alpha output becomes Delta and 40% becomes Pi. Each product can be sold as it or processed into the refined products Super Delta and Precision Pi. Selling prices for these products are:
Delta = $7/ton
Super Delta = $15/ton
Pi = $12/ton
Precision Pi = $24/ton
Processing costs to refine Delta into Super Delta are $2,400,000; processing costs to refine Pi into Precision Pi are $1,600,000.
What is the maximum profit that my company can expect to earn from the production of the 400,000 tons of Alpha?
Explanation / Answer
Delta Pi Total
SP (240,000 x $7) $1,680,000
SP (160,000 x $12) $1,920,000 $3,600,000
Less : Joint Cost $742,500
__________________________________
Income $2,857,500
___________________________________
Process Further
Super Delta Precision Pi Total
SP (240,000 x $15 ) $3,600,000
SP (160,000 x $24) $3,840,000 $7,440,000
Less : Processing Cost $2,400,000 $1,600,000 $4,000,000
$3,440,000
Less : Joint costs $742,500
_______________________________________
Income $2,697,500
________________________________________
What is the maximum profit that my company can expect to earn from the production of the 400,000 tons of Alpha?
$2,857,500
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