Question

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:

Selling price ($2.40 per pound)	$	2.40
Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product		1.30
Profit per pound	$	1.10

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 $0.14 to further process one T-bone steak into the filet mignon and New York cuts. The filet mignon can be sold for $3.60 per pound, and the New York cut can be sold for $3.20 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?

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 answer to 2 decimal places.)

	Financial advantage      per unit

Answer 1

Statement showing computation of Financial Advantage of Further Processing -Lone Star
Particular	Amount
Sales From Further Processing:
Sales Price Of One Filet Mignon (6 Ounces × $3.6)/16	$1.35
Sales Price Of One New York Cut (8OunceX $3.20)/16	$1.60
Total Revenue From Further Processing (a)	$2.95
Less Sales Revenue From One T-Bone Steak (b)	$2.40
Incremental Revenue by Further Processing (c=a-b)	$0.55
Less Cost Of Further Processing (d)	$0.14
Net Financial Advantage by accepting Further Processing Proposal (c-d)	$0.41
It's recommended that T-Bone Should be Sold after further Processed

Financial Advantage of $0.41 per Unit