(Prepared from a situation suggested by Professor John W. Hardy.) Abilene Meat P
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Question
(Prepared from a situation suggested by Professor John W. Hardy.) Abilene Meat Processing Corporation 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 is or to process them further into filet mignon and New York cut steaks.
Management believes that a 1-pound T-bone steak would yield the following profit:
As mentioned above, instead of being sold as is, 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 $0.12 per pound. The filet mignon can be sold for $4.00 per pound, and the New York cut can be sold wholesale for $3.30 per pound.
Determine the profit per pound from processing the T-bone steaks further into filet mignon and New York cut steaks. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Would you recommend that the T-bone steaks be sold as is or processed further?
(Prepared from a situation suggested by Professor John W. Hardy.) Abilene Meat Processing Corporation 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 is or to process them further into filet mignon and New York cut steaks.
Management believes that a 1-pound T-bone steak would yield the following profit:
Wholesale selling price ($2.30 per pound) $ 2.30 Less joint costs incurred up to the split-off point whereT-bone steak can be identified as a separate product 1.55 Profit per pound $ 0.75
As mentioned above, instead of being sold as is, 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 $0.12 per pound. The filet mignon can be sold for $4.00 per pound, and the New York cut can be sold wholesale for $3.30 per pound.
Required: 1.Determine the profit per pound from processing the T-bone steaks further into filet mignon and New York cut steaks. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Profit per pound from further processing $ ___ 2.Would you recommend that the T-bone steaks be sold as is or processed further?
Explanation / Answer
The decision to cut T Bone steak should depend on the following cost
% of T bone used in filet = 6/16 = 37.5%, New york cut = 8/16 = 50% , balance 2/6 = 12.5% is a waste
If T bone is sold in the market, the cost is 1.55 (given)
Filet = 37.5% of 1.55 = 0.58125
New york cut = 50% of 1.55 = 0.775
Cost of cut
Filet = 37.5% of 0.12 = 0.045
New york = 50 % of 0.12 = 0.06
It is preferred that T Bone should be further proccessed and sold .
Filet New york cut Total Sale price 4 3.3 7.3 Cost of T Bone 0.58125 0.775 1.35625 Cost of Cut 0.045 0.06 0.105 Profit 3.37375 2.465 5.83875 Wastage 0 2 ounce of T Bone 0.19375 from cut 0.015 Total 5.63Related Questions
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