(Prepared from a situation suggested by Professor John W. Hardy.) Lone Star Meat
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Question
(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.
As mentioned above, instead of being sold as initially cut, the T-bone steaks could be further processed into filet mignon and New York cut steaks. Cutting one side of a T-bone steak provides the filet mignon, and cutting the other side provides the New York cut. One 16-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. The cost of processing the T-bone steaks into these cuts is $0.18 per pound. The filet mignon can be sold for $4.00 per pound, and the New York cut can be sold for $2.90 per pound.
Determine the profit per pound from processing the T-bone steaks into filet mignon and New York cut steaks. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Per 16-Ounce
T-BoneSales from further processing:
Sales price of one filet mignon
Sales price of one New York cut
Total revenue from further processing
Less sales revenue from one T-bone steak
Incremental revenue from further processing
Less cost of further processing
Profit(loss) per pound from further processing
(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:Explanation / Answer
(a)
(b)
Incremental Revenue Revenue from processing further a one-pound T-bone steak 6-ounce filet mignon @ $3.60 per pound $1.35 8-ounce New York cut @ $2.90 per pound 1.45 $2.80 Wholesale selling price of a one-pound T-bone steak "as is" 2.25 Increase in revenue from processing further $0.55 Incremental Cost Per pound cost of processing a one-pound T-bone steak into a 6-ounce filet mignon and a 8-ounce New York cut 0.20 Incremental benefit of further processing per a one-pound T-bone steak $0.35(b)
Process further. There is a $.35 benefit per one-pound T-bone steak processed. Note: The allocated joint cost of $1.70 is irrelevant. The cost will be incurred regardless of whether the T-bone steaks are processed further or not. To be relevant a cost or revenue must: 1. be a future cost or revenue, not a past cost or past revenue, and 2. the future cost or revenue must differ between alternatives.Related Questions
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