Question

Stenback Chemical has spent $242,000 to refine 73,000 gallons of​ acetone, which can be sold for...

Stenback

Chemical has spent

$242,000

to refine

73,000

gallons of​ acetone, which can be sold for

$2.30

a gallon.​ Alternatively,

Stenback

Chemical can process the acetone further. This processing will yield a total of

63,000

gallons of lacquer thinner that can be sold for

$3.00

a gallon. The additional processing will cost

$0.65

per gallon of lacquer thinner. To sell the lacquer​ thinner,

Stenback

Chemical must pay shipping of

$0.24

a gallon and administrative expenses of

$0.12

a gallon on the thinner.

Requirements

1.

 Identify the sunk cost. Is the sunk cost relevant to

Stenback​'s

​decision? Why or why​ not?

2.

 Should

StenbackStenback

sell the acetone as is or process it into lacquer​ thinner? Show the expected net revenue difference between the two alternatives.

Requirement 1. Identify the sunk cost. Is the sunk cost relevant to

StenbackStenback​'s

​decision? Why or why​ not?

The

is a sunk cost that

differ between alternatives of selling as is or processing

further. Consequently, this sunk cost of $

is

to the sell or process further decision.
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