Question

Sell or Process Further Rise N' Shine Coffee Company produces Columbian coffee in batches of 5,600 pounds. The standard quantity of materials required in the process is 5,600 pounds, which cost $4 per pound. Columbian coffee can be sold without further processing for $8.4 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $10 per pound. The processing into Decaf Columbian requires additional processing costs of $8,550 per batch. The additional processing will also cause a 6% loss of product due to evaporation. a. Prepare a differential analysis dated October 6 on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2). Differential Analysis Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2) October 6 Sell Regular Process Further Differential Columbian into Decaf Columbian Effect on Income (Alternative 1) (Alternative 2) Alternative 2) Revenues Costs Income (Loss) b. Should Rise N' Shine sell Columbian coffee or process further and sell Decaf Columbian? c. 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. per pound

Answer 1

Decaf Columbian units	5264	=5600*(1-6%)
a
Differential Analysis
Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2)
October 6
	Sell	Process	Differential
	Regular	Further into	Effect
	Columbian	Decaf	on Income
	(Alternative 1)	Columbian	(Alternative 2)
		(Alternative 2)
Revenues	47040	52640	5600
Costs	-22400	-30950	-8550
Income (Loss)	24640	21690	-2950
b
Sell Columbian Coffee
c
Price of Decaf Columbian	10.56 per pound	=10+(2950/5264)
Workings:
	Sell	Process
	Regular	Further into
	Columbian	Decaf
	(Alternative 1)	Columbian
		(Alternative 2)
Revenues	=5600*8.40	=5264*10
Costs	=5600*4	=22400+8550