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, 413,000 tons of Alpha were mined and processed at a cost of $749,000. 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 $11 /ton Super Delta $16 /ton Pi $15 /ton Precision P $26 /ton Selling price Processing costs to refine Delta into Super Delta are $2,478,000; processing costs to refine Pi into Precision Pi are $1,652,000 Required a-1. What would be the incremental profit or loss per unit if Delta is refined into Super Delta? (Loss amounts should be indicated with a minus sign.) Incremental Profit (Loss)$ (5) a-2. What would be the incremental profit or loss per unit if Pi is refined into Precision Pi? Incremental Profit (Loss) 1

Explanation / Answer

ans)

a-1) Tons

Alpha production 413000

Delta (413000 X 60%) 247800

Pi (413000 X 40%) 165200

If Delta is refined into super delta

Differential cost analysis:

Incremental selling price ( 16-11) = 5

Incremental costs of further processing

( 2478000 / 247800) = (10)

Incremental loss (5)

a-2) If Pi is refined into Precision Pi

Incremental selling price (26 -15) = 11

Less: Incremental further processing costs = (10)

(1652000 / 165200)

Incremental profit 1   

C) Maximum profit of ADP company

Delta Precision Pi

Sales (247800 X 11) 2725800 4295200 (165200 X 26)

Less: further processing costs ---- (1652000)

Maximum profit 2725800 2643200

Maximum profit that ADP mining company can expect = 2725800 + 2643200 = 5369000

As we incur loss by refining Delta into Super delta it should be sold as delta

and by refining Pi inti precision pi we get a profit so it should be further processed

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