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 4% loss of product due to evaporation.

a. Prepare a differential analysis dated August 28, 2014, on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2).

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. How much per pound?

Expert Solution

Solution:(a): Differential Analysis:

Particulars	Amount ($)
Differential revenue from further processing per batch:
Revenue from sale of Decaf Columbian(510096%11)	53,856
Revenue from sale of Columbian coffee (5100*9.4)	47,940
Differential revenue	5,916
Differential cost per batch:
Additional cost of producing Decaf Columbian	9,650
Differential loss from further processing:
Decaf Columbian per batch (9650-5916)	(3,734)

The Differential Revenue from processing further to Decaf Columbian is less than the Differential cost of further processing. Therefore, Zing Roast Coffee Company should sell Columbian coffee and not process further to Decaf Columbian.

Solution:(b): Calculation of price of Decaf Columbian:

Price: Net Disadvantage of further processing ÷ volume of Decaf Columbian

= $3734/4896* lbs. = $0.76 per lb.

Therefore, the price of Decaf Columbian would need to be $0.76 or higher, or $11.76 to yield no net Differential income or loss.

*5100*96% = 4896

ekkarill92 answered 1 year ago

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