(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. 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: Selling price ($2.20 per pound) $ 2.20 Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product 1.30 Profit per pound $ 0.90 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 $3.60 per pound, and the New York cut can be sold for $3.50 per pound.
1. 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.)
Would you recommend that the T-bone steaks be sold as initially cut or processed further?
sales price of one filet sales proce of one NY cut less sales revenue from one t bone less cost of further processingExplanation / Answer
1 pound =16 ounce
Filet Mignon= 3.6*(6/16)=$1.35 per cut
New york cut=3.5*(8/16)=$1.75 per cut
Total=1.35+1.75= $3.1 price per pound
Total costs=costs upto split+ extra processing
=1.3+0.18= $1.48 per pound
Profit=3.1-1.48=$1.62 per pound
Initial case the profit is $0.9 per pound
So it is better to sell it after processed.
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