Sell or Process Further Abica Coffee Company produces Columbian coffee in batches of 4,100 pounds. The...

Sell or Process Further

Abica Coffee Company produces Columbian coffee in batches of 4,100 pounds. The standard quantity of materials required in the process is 4,100 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 $8,671 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

Solutions

Expert Solution

(a)

Abica Coffee Company
Proposal to Process Columbian Coffee Further
Differential Analysis Report
Differential revenue from further processing per batch:
Revenue from sale of Decaf Columbian (4,100 - 5%) x $12	$46,740
Revenue from sale of Columbian coffee (4,100 x 9)	36,900
Differential revenue		$9,840
Differential cost per batch:
(Additional cost of producing Decaf Columbian, Decaf Columbian per batch, Differential revenue, Revenue from sale of Columbian coffee, Revenue from sale of Decaf Columbian)		8,671
Differential income from further processing Decaf Columbian per batch		$1,169

(b) Abica should produce and sell Decaf as $1,169 will be earned more by selling Decaf At $12 per pound.

(c) Price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian:

= Net Profit after further processing / Volume of decaf columbian

= 1,169 / (4,100 - 5%)

= 1,169 / 3,895

= 0.30

Price should be reduced by $0.30 for no extra Profit.

Price should be $12 - $0.30 = $11.70

Price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian:: $11.70

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Sell or Process Further Zing Coffee Company produces Columbian coffee in batches of 5,800 pounds. The...

Sell or Process Further Zing Coffee Company produces Columbian coffee in batches of 5,800 pounds. The standard quantity of materials required in the process is 5,800 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 $12,542 per batch. The additional processing also...

Sell or Process Further Rise N’ Shine Coffee Company produces Columbian coffee in batches of 6,000...

Sell or Process Further Rise N’ Shine Coffee Company produces Columbian coffee in batches of 6,000 pounds. The standard quantity of materials required in the process is 6,000 pounds, which cost $6 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 $8,950 per batch. The additional...

Abica Coffee Company produces Columbian coffee in batches of 5,900 pounds. The standard quantity of materials...

Abica Coffee Company produces Columbian coffee in batches of 5,900 pounds. The standard quantity of materials required in the process is 5,900 pounds, which cost $4.00 per pound. Columbian coffee can be sold without further processing for $8.40 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $11.00 per pound. The processing into Decaf Columbian requires additional processing costs of $12,450 per batch. The additional processing will also cause a 4%...

Dakota Coffee Company produces Columbian coffee in batches of 7,500 pounds. The standard quantity of materials...

Dakota Coffee Company produces Columbian coffee in batches of 7,500 pounds. The standard quantity of materials required in the process is 7,500 pounds, which cost $6.00 per pound. Columbian coffee can be sold without further processing for $9.80 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $11.60 per pound. The processing into Decaf Columbian requires additional processing costs of $6,300 per batch. The additional processing will also cause a 5%...

Zing Roast Coffee Company produces Columbian coffee in batches of 5,100 pounds. The standard quantity of...

Zing Roast Coffee Company produces Columbian coffee in batches of 5,100 pounds. The standard quantity of materials required in the process is 5,100 pounds, which cost $5.00 per pound. Columbian coffee can be sold without further processing for $9.40 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $11.00 per pound. The processing into Decaf Columbian requires additional processing costs of $9,650 per batch. The additional processing will also cause a...

Net Realizable Value Method, Decision to Sell at Split-off or Process Further Pacheco, Inc., produces two...

Net Realizable Value Method, Decision to Sell at Split-off or Process Further Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were $60,000, and 15,000 units of overs and 36,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, $20,000; unders, $23,040. Overs sell for $2.00 per unit; unders sell for $3.14 per unit. Required: 1. Allocate the $60,000 joint costs using the estimated...

Net Realizable Value Method, Decision to Sell at Split-off or Process Further Pacheco, Inc., produces two...

Net Realizable Value Method, Decision to Sell at Split-off or Process Further Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were $60,000, and 13,000 units of overs and 35,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, $16,000; unders, $19,900. Overs sell for $2.00 per unit; unders sell for $3.14 per unit. Required: 1. Allocate the $60,000 joint costs using the estimated...

Net Realizable Value Method, Decision to Sell at Split-off or Process Further Pacheco, Inc., produces two...

Net Realizable Value Method, Decision to Sell at Split-off or Process Further Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were $60,000, and 14,000 units of overs and 36,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, $18,000; unders, $23,040. Overs sell for $2.00 per unit; unders sell for $3.14 per unit. Required: 1. Allocate the $60,000 joint costs using the estimated...

In a decision to sell or to process further, of what relevance are costs incurred prior...

In a decision to sell or to process further, of what relevance are costs incurred prior to the decision point? Explain your answer.

Wake-Me-Up Company manufactures 800 pounds of regular ground coffee and 1,200 pounds of specialty ground coffee...

Wake-Me-Up Company manufactures 800 pounds of regular ground coffee and 1,200 pounds of specialty ground coffee in which $3,000 of joint costs have been incurred at the split-off point. a. If management decides to use the physical units method to allocate joint costs, how much of the cost will be allocated to each of the two final products? b. Wake-Me-Up can sell each product at the split-off point or process the products further in relatively similar processes, so management has...

Subjects