Question

6 Seller Process Further (HrExercises in your textbook). Bart's Butters receives 1.000.000 contain ers of raw milk each period that it subsequently processes into raw milk by adjusting the fat content, adding Vitamins, and destroying any potentially harmful bacteria For Bart's, one container equals negation of con sumable milk. Bart's must then decide whether to sell its consumable milk at split-off or to process it further into butter. Bart's normally sells consumable milk fora per gallan price of 53. Alternatively, each gallon of milk can be processed further into one-half tuborbutter (one gallon of milk equals 0.5 gallon of butter) at an additional cost of $1.50 per tuh. Also, butter can be sold for $6.00 per tab. a. What is the contribution to income from selling the consumable milk? b. What is the contribution to income from processing the consumable milk into butter? c. Should Bart's continue to sell the consumable milk or process it further into butter?

Answer 1

Solution a:

Contribution to income from selling the consumable milk = 1000000*$3 = $3,000,000

Solution b:

Contribution to income from processing the consumable milk into butter = Sale value of butter - Further processing costs

= (1000000/2*$6) - (500000*$1.50) = $2,250,000

Solution c:

Bart should continue to sell consumable milk.