Question

Sell or Process Further Abica Coffee Company produces Columbian coffee in batches of 4,300 pounds. The standard quantity of materials required in the process is 4,300 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 $9,013 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

Answer 1

Differential Analysis
Sell Regular Columbian (Alt. 1)
Process Further into Decaf Columbian (Alt. 2)
Process Further into Decaf Columbian (Alternative 2) (4085*9)	$        36,765
Less: Sell Regular Columbian (Alternative 1) (4300*6)	$        25,800
Differential Effect on Revenue income	$        10,965
Less: Additional processing costs	$          9,013
Income (Loss) if process furhter	$          1,952
Should Abica sell Columbian coffee or process further and sell Decaf Columbian?
Increase in net income if process furhter by $ 1952.
Abica should process further and sell Decaf Columbian.
Determine the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian.
Income (Loss) if process furhter	$          1,952
Divided by: Number of Unit if Further Process	4,085
Higher Actual price of Decaf Columbian	$            0.48
Actual Selling price of Columbian coffee	$            9.00
Less: Higher Actual price of Decaf Columbian	$            0.48
Price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian.	$            8.52