Sell or Process Further Abica Roast Coffee Company produces Columbian coffee in

Question

Sell or Process Further

Abica Roast Coffee Company produces Columbian coffee in batches of 5,500 pounds. The standard quantity of materials required in the process is 5,500 pounds, which cost $6.00 per pound. Columbian coffee can be sold without further processing for $8.40 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $10.00 per pound. The processing into Decaf Columbian requires additional processing costs of $10,450 per batch. The additional processing will also cause a 4% loss of product due to evaporation.

a. Prepare a differential analysis dated August 28, 2014, on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2).

Differential Analysis

Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2)

August 28, 2014

Sell Regular Columbian (Alternative 1)

Process Further into Decaf Columbian (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$  

$  

$  

Costs

  

  

  

Income (Loss)

$  

$  

$  

Differential Analysis

Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2)

August 28, 2014

Sell Regular Columbian (Alternative 1)

Process Further into Decaf Columbian (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$  

$  

$  

Costs

  

  

  

Income (Loss)

$  

$  

$  

Explanation / Answer

Alternative 1 Alternative 2 Differential Revenue $          46,200.00 $           52,800.00 $        6,600.00 8.4*5500 10*5500*96% Cost $          33,000.00 $           43,450.00 $      10,450.00 Income (Loss) $          13,200.00 $             9,350.00 $      (3,850.00)

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