Beef Products, Inc., processes cattle. It can sell the meat as sides of beef or
ID: 2468205 • Letter: B
Question
Beef Products, Inc., processes cattle. It can sell the meat as sides of beef or process it further into final cuts (steaks, roasts, and hamburger). As part of the company's strategic plan, management is looking for new markets for meat or meat by-products. The production process currently separates hides and bones for sale to other manufacturers. However, management is considering whether it would be profitable to process the hides into leather and the bones into fertilizer. The costs of the cattle and of transporting, hanging, storing, and cutting sides of beef are $100,000. The company's accountant provided these data:
Which product/products should be processed further?
Select one : None of the products Only meat and bones Only meat and hides Only the meat Only the hides
Sold at Split-Off Sales Revenue if Sold
After Further Processing Additional
Processing Costs Meat $100,000 $200,000 $80,000 Bones 20,000 40,000 25,000 Hides 50,000 60,000 5,000
Explanation / Answer
Product
Sales Price After Further Processing
Sale Value @ split off Point
Incremental reveue
Incremental Cost
Net Profit
Meat
200,000
100,000
100,000
80,000
20,000
Bones
40,000
20,000
20,000
25,000
(5,000)
Hides
60,000
50,000
10,000
5,000
5,000
Only meat and hides should be processed further as there is a profit
Product
Sales Price After Further Processing
Sale Value @ split off Point
Incremental reveue
Incremental Cost
Net Profit
Meat
200,000
100,000
100,000
80,000
20,000
Bones
40,000
20,000
20,000
25,000
(5,000)
Hides
60,000
50,000
10,000
5,000
5,000
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