Question

Sell or Process Further Abica Coffee Company produces Columbian coffee in batches of 5,400 pounds. The standard quantity of materials required in the process is 5,400 pounds, which cost $5.00 per pound. Columblan coffee can be sold without further processing for $6.40 per pound. Columblan coffee can also be processed further to yleld Decaf Columblan, which can be sold for $11.00 per pound. The processing Into Decaf Columblan requires additional processing costs of $13,850 per batch. The additional processing will also cause a 5% loss of product due to evaporation. a. Prepare a differential analysis report for the decision to sell or process further. Abica Coffee Company Proposal to Process Columbian Coffee Further Dlfferentlal Analysis Report Differential revenue from further processing per batch Differential cost per batch: b. Should Abica Coffee 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 the nearest cent per pound

Answer 1

Solution a:

Abica Coffee Company
Proposal to process columbian coffee further
Differential analysis report
Particulars		Amount
Differential revenue from further processing per batch:
Revenue after further processing (5400*95*$11)	$56,430.00
Revenue without further processing (5400*$6.40)	$34,560.00
Differential revenue		$21,870.00
Differential cost per batch:
Further processing costs		$13,850.00
Additional income from further processing		$8,020.00

Solution b:

Abica coffee process further and sell Decaf Columbian.

Solution c:

Price of Decaf columbian causing neither advantage or disadvantage = (Revenue without further processing + Further processing cost) / Nos of pounds

= ($34,560 + $13,850) / (5400*95%)

= $9.44