Question

Cole Chemical has spent $245,000 to refine 71,000 gallons of acetone, which can be sold for $2.40 a gallon. Alternatively, Cole Chemical can process the acetone further. This processing will yield a total of 63,000 gallons of lacquer thinner that can be sold for $3.30 a gallon. The additional processing will cost $0.75 per gallon of lacquer thinner. To sell the lacquer thinner, Cole Chemical must pay shipping of $0.22 a gallon and administrative expenses of $0.10 a gallon on the thinner. Requirements 1. Identify the sunk cost. Is the sunk cost relevant to Cole's decision? Why or why not? 2. Should Cole sell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. Requirement 1. Identify the sunk cost. Is the sunk cost relevant to Cole's decision? Why or why not? The further. Consequently, this sunk cost of $ is a sunk cost that lis differ between alternatives of selling as is or processing to the sell or process further decision Requirement 2. Should Cole sell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. (Enter a "O" for any zero amounts. Use a minus sign or parentheses in the Difference column if the Sell As is amount exceeds the Process Further amount.) Sell Process Further As Is Difference Less: Net benefit to operating income per batch Decision Choose from any list or enter any number in the input fields and then continue to the next question

Answer 1

The refining of $245,000 is a sunk cost

That does not differ

Sunk cost of $245,000 is irrelevant

	Sell	Process	Difference
Revenue	170,400	207,900	37,500
Less: incremental costs of processing	0	67,410	67,410
Net benefit	170,400	140,490	-29,910

Decision: sell as is