ADP Mining Company mines an iron ore called Alpha. During the month of August, 4

Question

ADP Mining Company mines an iron ore called Alpha. During the month of August, 403,000 tons of Alpha were mined and processed at a cost of $744,000. As the Alpha ore is mined, it is processed into Delta and Pi, where 60% of the Alpha output becomes Delta and 40% becomes Pi. Each product can be sold as is or processed into the refined products Super Delta and Precision Pi. Selling prices for these products are as follows Delta $13 /ton Super Delta $18 ton Pi $18 ton Precision Pi S27 /ton Selling price Processing costs to refine Delta into Super Delta are $2,659,800, processing costs to refine Pi into Precision Pi are $967,200 Required a-1. What would be the incremental profit or loss per unit if Delta is refined into Super Delta? (Loss amounts should be indicated with a minus sign.) Incremental Profit (Loss) a-2. What would be the incremental profit or loss per unit if Pi is refined into Precision Pi? cremental Profit (Loss) a-3. Should Delta be sold as is or refined into Super Delta? O Delta should be sold as is Delta should be processed further and sold as Super Delta. a-4. Should Pi be sold as is or refined into Precision Pi? Pi should be processed further and sold as Precision Pi Pi should be sold as is. b. Identify any costs in the problem that are not relevant to this decision The $744,000 cost incurred to produce the Alpha ore is not relevant Processing costs to refine Delta into Super Delta are not relevant. Processing costs to refine Pi into Precision Pi are $967,200 not relevant. c. What is the maximum profit that ADP Mining Company can expect to earn from the production of the 403,000 tons of Alpha? aximum

Explanation / Answer

Alpha quantity 403,000 Output: Delta (403000*60%) 241,800 Pi (403000*40%) 161,200 Incremental analysis for Further processing: Delta PI Sales units 241800 161200 Selling price at split off 13 18 Sales after further processing 18 27 Incremental selling price 5 9 Incremental sales 1209000 1450800 Less: Incremental further processing cost 2659800 967200 Incremental profit/ (loss) -1450800 483600 Req a-1 Incremental loss of further processing of Delta:   ($1450,800) Req a-2 Incremental profit of further processing of Pi: $ 483600 Req a-3 Delta should be sold as is. Req a-4 Pi should be processed further and sold as Prercision Pi Req b: Irrelevant cost is: $ 744,000 cost incurred to produce the Alpha ore is not relevant. Req c: Delta PI Total Sales units 241800 161200 403000 Selling price per unit 13 27 Total sales revenue 3143400 4352400 7495800 Less: Joint cost 744,000 Less: Further processing cost of Pi 967200 Net operating income 5,784,600

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