Question

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 yield the following profit: As mentioned above, instead of being sold as initially cut, 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. 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. The cost of processing the T-bone steaks into these cuts is $0.17 per pound. The filet mignon can be sold for $3.60 per pound, and the New York cut can be sold for $3.50 per pound. Determine the profit per pound from processing the T-bone steaks into filet mignon and New York cut steaks. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Would you recommend that the T-bone steaks be sold as initially cut or processed further? T-bone steaks should be processed further. T-bone steaks should be sold as initially cut.

Answer 1

1)

Sales from further processing Sales price offilet Mİgton Newygrk Cut Total revenue Less: s 3.60 3.50 7.10 2.40 4.70 0.17 Profit(loss) per Pound from further processing 4.53 ales revenue Tbone steak Incremental revenue Less Cost ofFurtherprocessing

2)

Profit from further processing is more than the initital cut Therefore T - bone steaks should be further process.