18 Prevatte Corporation purchases potatoes from farmers. The potatoes are then p
ID: 435319 • Letter: 1
Question
18 Prevatte Corporation purchases potatoes from farmers. The potatoes are then peeled, producing two intermediate products-peels and depeeled spuds. The peels can then be processed further to make a cocktail of organic nutrients. And the depeeled spuds can be processed further to make frozen french fries. A batch of potatoes costs $41 to buy from farmers and $11 to peel in the company's plant. The peels produced from a batch can be sold as is for animal feed for $23 or processed further for $16 to make the cocktail of nutrients that are sold for $43. The depeeled spuds can be sold as is for $34 or processed further for $23 to make frozen french fries that are sold for $55 Required: a. Assuming that no other costs are involved in processing potatoes or in selling products, how much money does the company make from processing one batch of potatoes into the cocktail of organic nutrients and frozen french fries? (Input the amount as a positive value. Omit the "$" sign in your response.) (Click to select) b. Should each of the intermediate products, peels and depeeled spuds, be sold as is or processed further into an end product? (Loss amounts should be indicated with a minus sign. Omit the "$" sign in your response.) Cocktail of Organic Frozen French Fries Incremental Profit (loss) from further processing Cocktail of Organic Nutrients Frozen French Fries Click to select) Click to select)Explanation / Answer
ANS a )-
Money made by converting the peels into organic nutrients is=$27 (SALE PRICE- COST PRICE)i.e ($43-$16)
Money made by converting the depeeled spuds into frozen fries is =$32(SALE PRICE -COST PRICE) i.e.($55-$23)
Total money made is $59.from both goods.
ANS B)-
TOTAL MONEY SPEND on purchasing the batch of potatoes = $41
Total money spend on peeling them= $11
therfore $41+$11 =$52
CASE 1- if the intermediateries are sold as is then :-
money earned from product peels is = $23
monEy earned from deepeeled spuds is = $34
therfore total money earned is $23+$34 = $57
CASE 2- if the intermediatries are further processed then:-
total money earned on organic nutrients is = $27 (i.e $43-$16)
total money earne from french fries is= $32 (i.e $55-$32)
total money earned is $27+$32= $59.
therefore as comparing more profit is in processing the peels into organic nutrients and fries.
PROFIT FROM SELLING AS IT IS ( $52-$57) = $5
PROFIT FROM SELLING AFTER CONVERSION IS ($52-$59) = $7
SO IT IS CLEARLY SEEN THAT MORE PROFIT COULD BE EARNED BY CONVERTING THE PEELS.
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