Sell or Process Further Rise N’ Shine Coffee Company produces Columbian coffee i

Question

Sell or Process Further

Rise N’ Shine Coffee Company produces Columbian coffee in batches of 5,700 pounds. The standard quantity of materials required in the process is 5,700 pounds, which cost $6 per pound. Columbian coffee can be sold without further processing for $8.4 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $10 per pound. The processing into Decaf Columbian requires additional processing costs of $9,050 per batch. The additional processing will also cause a 6% loss of product due to evaporation.

a. Prepare a differential analysis dated October 6 on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2).

b. Should Rise N’ Shine sell Columbian coffee or process further and sell Decaf Columbian?

c. Determine the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian. Round your answer to two decimal places.
$ per pound

Differential Analysis Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2) October 6 Sell Regular
Columbian
(Alternative 1) Process Further
into Decaf Columbian
(Alternative 2) Differential
Effect on Income
(Alternative 2) Revenues $ $ $ Costs Income (Loss) $ $ $

Explanation / Answer

Sell Regular Columbian Process Further into Decaf Columbian Differential Effect on Income Revenues 47880 53580 5700 Costs -34200 -43250 -9050 Income (Loss) 13680 10330 -3350 b Rise N’ Shine Company should sell Columbian coffee and not process further to Decaf Columbian c Price of Decaf Columbian = 10+(3250/5358)= $10.63

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