Question

Rise N’ Shine Coffee Company produces Columbian coffee in batches of 5,400 pounds. The standard quantity of materials required in the process is 5,400 pounds, which cost $5 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 $9,250 per batch. The additional processing will also cause a 5% 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).

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)	$	$	$

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

Answer 1

A
	Differential Analysis
	Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2)
	Oct-06
		Sell Regular	Process Further	Differential
		Columbian	into Decaf Columbian	Effect on Income
		(Alternative 1)	(Alternative 2)	(Alternative 2)		(Alternative 1)	(Alternative 2)
	Revenues	45360	51300	5940		5400*8.4	5400*95%*10
	Costs	0.00	9250	9250		Sunk Cost	9250
	Income (Loss)	45,360	42,050	-3,310
B	Company Should Sell Regular Columbian
C	45360=(5400*95%*X)-9250
	54610=(5130X)
	X=54610/5130
	X=10.65