Prepared from a situation suggested by Professor John W Hard

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 t 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 $ 2.20 Selling price ($2.20 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 $0.50 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 $0.15 per pound. The fillet mignon can be sold for $4.00 per pound, and the New York cut can be sold for $3.40 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.) 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 0.00 0.00 0.00 2. Would you recommend that the T-bone steaks be sold as initially cut or processed further? O T-bone steaks should be processed further. ?-bone steaks should be sold as initially cut. References eBook & Resources Worksheet Difficulty: 1 Easy Learning Objective: 10-07 products should be sold at split-off p

Solution

1) Incremental analysis :

2) T bone steaks should be processed further

Sales from further processing
Sale price of one filet mignon	4.00
Sale price of one new york cut	3.40
Total revenue from further processing	7.40
Less: Sales revenue from one T-bone steak	-2.20
Incremental revenue from further processing	5.20
Less: Cost of futher processing	-0.15
Profit (loss) Per pound from further processing	5.05