Sell or Process Further, Basic Analysis Carleigh, Inc., is a pork processor. Its

Question

Sell or Process Further, Basic Analysis Carleigh, Inc., is a pork processor. Its plants, located in the Midwest, produce several products from a common process: sirloin roasts, chops, spare ribs, and the residual. The roasts, chops, and spare ribs are packaged, branded, and sold to supermarkets. The residual consists of organ meats and leftover pieces that are sold to sausage and hot dog processors. The joint costs for a typical week are as follows: Direct materials Direct labor Overhead The revenues from each product are as follows: sirloin roasts, $68,000; chops, $71,000; spare ribs, $33,000; and residual, $9,800 Carleigh's management has learned that certain organ meats are a prized delicacy in Asia. They are considering separating those from the residual and selling them abroad for $52,000. This would bring the value of the residual down to $2,650. In addition, the organ meats would need to be packaged and then air freighted to Asia. Further processing cost per week is estimated to be $27,500 (the cost of renting additional packaging equipment, purchasing materials, and hiring additional direct labor). Transportation cost would be $12,100 per week. Finally, resource spending would need to be expanded for other activities as well (purchasing, receiving, and internal shipping). The increase in resource spending for these activities is estimated to be $3,120 per week. $84,500 29,000 20,000 Required:

Explanation / Answer

Requirement 1 The Gross profit earned by the original mix of products for one week Amount Amount Revenue from Sirloin Roasts 68000 Chops 71000 Spare Ribs 33000 Residual 9800 Total Revenue from products 181800 Joint cost of products Direct materials 84500 Direct Labor 29000 Overhead 20000 Total Joint cost of products 133500 Gross profit=Revenue - Joint costs 48300 Requirement 2 Yes, The company should separate the organ meats for shipment overseas and should stop selling them at split off Additional Reveneue from selling organ meat overseas 52000 Residual value 2650 Total Revenue 54650 Less : costs Further processing costs 27500 Transportation costs 12100 Resource spending 3120 Opportunity cost 9800 Total relevent cost associated with decision 52520 Additional or Increase in Profit of residual 2130 The decision will increase the gross profit by 2130 We appreciate rating of our answers. It really encourages us to improve/maintain our quality of answers. Thank You.

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