ADP Mining Company mines an iron ore called Alpha. During the month of August, 4

Question

ADP Mining Company mines an iron ore called Alpha. During the month of August, 404,000 tons of Alpha were mined and processed at a cost of $744,500. As the Alpha ore is mined, it is processed into Delta and Pi, where 60% of the Alpha output becomes Delta and 40% becomes Pi. Each product can be sold as is or processed into the refined products Super Delta and Precision Pi. Selling prices for these products are: Delta Super Delta Pi Precision Pi Selling price $15/ton $19/ton $20/ton $28/ton Processing costs to refine Delta into Super Delta are $2,908,800; processing costs to refine Pi into Precision Pi are $646,400. Required: a-1 What would be the incremental profit or loss per unit if Delta is refined into Super Delta? a-2 What would be the incremental profit or loss per unit if Pi is refined into Precision Pi? a-3 Should Delta be sold as is or refined into Super Delta? Delta should be sold as is. Delta should be processed further and sold as Super Delta. a-4 Should Pi be sold as is or refined into Precision Pi? Pi should be sold as is. Pi should be processed further and sold as Precision Pi. b. Identify any costs in the problem that are not relevant to this decision. Processing costs to refine Delta into Super Delta are not relevant. Processing costs to refine Pi into Precision Pi are $646,400 not relevant. The $744,500 cost incurred to produce the Alpha ore is not relevant. c. What is the maximum profit that ADP Mining Company can expect to earn from the production of the 404,000 tons of Alpha?

Explanation / Answer

Alpha refined in to delta = 404000 * .60 = 242400 tons

A-1)Incremental revenue = 242400 * 19 = 4605600

Incremental cost   =   (2908800)

Incremental profit = 1696800

a-2) Number of tons refined as Pi = 404000*.40 = 161600

Incremental revenue = 161600 * 28 = 4524800

Incremental cost = 646400

Incremental profit = 3878400

a-3)Delta should be further processed and sold as super delta

a-4) Pi should be processed further and sold as Precision P i

b) Cost of processing alpha in to delat and Pi is not relevant as it will be incurred whether delta and Pi is further processed or not. The $744,500 cost incurred to produce the Alpha ore is not relevant.

c) Maximum profit = 1696800+3878400-744500= 4,830,700

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.