Lone Star Meat Packers is a major processor of beef and other meat products. The

Question

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: 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 $0.16 per pound. The filet mignon can be sold for $4.00 per pound, and the New York cut can be sold for $3.70 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.) Would you recommend that the T-bone steaks be sold as initially cut or processed further? T-bone steaks should be processed further. T-bone steaks should be sold as initially cut.

Explanation / Answer

1.

Profit is calculated as under:

2.

T-bone steaks should be processed further.

Per 16-ounce T bone Particulars Amount ($) Sales from further processing    sales price of one filet mignon 4*6/16 1.5    Sales price of one new york cut 3.7*8/16 1.85 Total revenue from further processing 3.35 Less: Sales revenue from one T-bone steak 2.5 Incremental revenue from further processing 0.85 Less: cost of further processing 0.16 Profit/(loss) from further processing 0.69

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