Question

Sell or Process Further Abica Coffee Company produces Columbian coffee in batches of 6,600 pounds. The...

Sell or Process Further

Abica Coffee Company produces Columbian coffee in batches of 6,600 pounds. The standard quantity of materials required in the process is 6,600 pounds, which cost $6 per pound. Columbian coffee can be sold without further processing for $9 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $12 per pound. The processing into Decaf Columbian requires additional processing costs of $13,645 per batch. The additional processing also causes 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). For those boxes in which you must enter subtracted or negative numbers use a minus sign.

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 Abica 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

Homework Answers

Answer #1
Req a;
Differential analysis
Sell Regular Process Differential
Further effect on Income
Revenue 59,400 75240 15,840
Cost 0 -13,645 -13645
Income (Loss) 59,400 61,595 2195
Yes, The Product should be further processed.
Note: Computation of revenue after further processing:
Units produced before processing 6600
less: Loss to evaporation 330
Units produced after processing 6270
Multiply: Selling price after further processing 12
Sales revenue after further processing 75240
Req b:
Sales price after further processing 12
Less: Decrease in price possible (2195/6270) 0.35
Price of Decaf Columbian 11.65
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