Question

(Prepared from a situation suggested by Professor John W. Hardy.) Lone Star Meat Packers 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 they are Initially cut or to process them further into filet mignon and the New York cut. If the T-bone steaks are sold as Initially cut, the company figures that a 1-pound T-bone steak would yleld the following profit: $ 2.40 Selling price ($2.40 per pound) Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product Profit per pound If the company were to further process the T-bone steaks, then cutting one side of a T-bone steak provides the filet mignon and cutting the other side provides the New York cut. One 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. It costs $0.19 to further process one T-bone steak Into the filet mignon and New York cuts. The filet mignon can be sold for $4.40 per pound, and the New York cut can be sold for $3.70 per pound. Required: 1. What is the financial advantage (disadvantage) of further processing one T-bone steak Into filet mignon and New York cut steaks? 2. Would you recommend that the T-bone steaks be sold as Initially cut or processed further? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage of further processing one T-bone steak into filet mignon and New York cut steaks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) per unit

Answer 1

Sno Amount Profit Before Further Process Particulars 1 Selling Price 2 Joint cost 3 Profit per pound(1-2) 2.4 1.25 1.15 Required 1 Profit After Further Process Sno Particulars Yield 1 Selling Price per pound 2 Joint cost in ratio of yield 6:8 [(1.25*6/14);(1.25*8/14)] 3 Further process cost in ratio of yield 6:8 [(.19*6/14);(.19*8/14)] 4 Profit per pound(1-2-3) filet mignon New York cut 6 ounce 8 ounce 4.4 3.7 0.54 0.71 0.08 0.11 3.78 2.88 Required 2 T bone steaks should be further process as it gives higher profit