(Prepared from a situation suggested by Professor John W. Hardy.) Lone Star Meat
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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: $2.40 1.70 $0.70 Selling price ($2.40 per pound) Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product Profit per pound As mentioned above, instead of being sold as initially cut, 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 $0.13 per pound. The filet mignon can be sold for $4.00 per pound, and the New York cut can be sold for $3.30 per pound Required 1. Determine the profit per pound from processing the T-bone steaks into filet mignon and New York cut steaks. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Per 16-Ounce T-Bone Sales from further processing Sales price of one filet mignon Sales price of one New York cut Total revenue from further processing Less sales revenue from one T-bone steak Incremental revenue from further processing Less cost of further processing Profit (loss) per pound from further processing 2. Would you recommend that the T-bone steaks be sold as initially cut or processed further? T-bone steaks should be processed further T-bone steaks should be sold as initially cut.Explanation / Answer
1) Determine profit per pound from processing the T bone steaks into file mignon and new york cut :
2) T bone steaks should be processed further
Sales from further processing : Sales price of one filet mignon 4.00 sale price of one new york cut 3.30 Total revenue from further processing 7.30 Less: sales revenue from one T bond steak (2.40) Incremental revenue from further processing 4.90 Less: cost of further processing (0.13) profit (loss) per pound from further processing 4.77Related Questions
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