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ACCT 386 - Week 7 - Homework - Question 2

ACCT 386 - Week 7 - Homework - Question 2
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ACCT 386 - Week 7 - Homework - Question 2

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Question 2

(Prepared from a situation suggested by Professor John W. Hardy.) Abilene Meat Processing Corporation is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as is or to process them further into filet mignon and New York cut steaks.

       Management believes that a 1-pound T-bone steak would yield the following profit:

 

 

 

  Wholesale selling price ($2.40 per pound)

$

2.40  

  Less joint costs incurred up to the split-off point where
    T-bone steak can be identified as a separate product

 

1.25  

 



  Profit per pound

$

1.15  

 






       As mentioned above, instead of being sold as is, the T-bone steaks could be further processed into filet mignon and New York cut steaks. Cutting one side of a T-bone steak provides the filet mignon, and cutting the other side provides the New York cut. A one pound (16-ounce) T-bone steak cut in this way will yield one 6-ounce filet mignon and one 8-ounce New York cut; the remaining ounces are waste. The cost of processing the T-bone steaks into these cuts is $0.17 per pound. The filet mignon can be sold for $4.40 per pound, and the New York cut can be sold wholesale for $3.80 per pound.