(Prepared from a situation suggested by Professor John W. Hardy.) Lone Star Meat
ID: 2530036 • Letter: #
Question
(Prepared from a situation suggested by Professor John W. Hardy.) 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:
If the company were to further process the T-bone steaks, then 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. It costs $0.17 to further process one T-bone steak into the filet mignon and New York cuts. The filet mignon can be sold for $3.60 per pound, and the New York cut can be sold for $3.70 per pound.
Required:
1. What is the financial advantage (disadvantage) of further processing one T-bone steak into filet mignon and New York cut steaks?
2. Would you recommend that the T-bone steaks be sold as initially cut or processed further?
Selling price ($2.40 per pound) $ 2.40 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 $ 0.85
Explanation / Answer
Calculate financial advantage (disadvantage) of further processing one T-bone steak into filet mignon and New York cut steaks :
4.73 is the financial advantage (disadvantage) of further processing one T-bone steak into filet mignon and New York cut steaks.
2) I would recommed that T bone steaks be sold processed further.
Sale price one filet mignon 3.60 Sale price one new york cut 3.70 Total sale price if process further 7.30 Less: Sales initially cut -2.40 Incremental Sale 4.90 Less: Incremental cost -0.17 Incremental profit (loss) 4.73Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.