(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: 2.50 Selling price ($2.50 per pound) Less joint costs incurred up to the split-off point where T-bone steak can be identified as a 1.45 separate product 1.05 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 $0.18 per pound. The filet mignon can be sold for $3.60 per pound, and the New York cut can be sold for $2.90 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 rocessin Less sales revenue from one T bone steak Incremental revenue from further rocessin Less cost of further processingExplanation / Answer
1) Calculation of Profit per pound from further processing (Figures in $)
2) T- bone steaks should be processed further as there is a profit of $0.18 per pound on further processing of T- bone steaks.
Sales from Further processing : Amounts Sales price of one filet mignon ($3.60/16 ounces*6 ounces) (as 1 pound = 16 ounces) 1.35 Sales price of one New York cut ($2.90/16 ounces*8 ounces) 1.45 Total revenue from further processing (1.35+1.45) 2.80 Less: Sales revenue from one T- bone steak (2.50) Incremental Sales revenue from further processing 0.30 Less: Further processing cost (0.18) Profit from further processing 0.12Related Questions
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