Question

Zing Coffee Company produces Columbian coffee in batches of 4,800 pounds. The standard quantity of materials required in the process is 4,800 pounds, which cost $5 per pound. Columbian coffee can be sold without further processing for $9 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $12 per pound. The processing into Decaf Columbian requires additional processing costs of $10,243 per batch. The additional processing also causes a 5% 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). For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2)
October 6
	Sell Regular Columbian (Alternative 1)	Process Further into Decaf Columbian (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs
Income (Loss)	$	$	$

b. Should Zing 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

Solution Revenue per batch (if sold as Regular Columbian) ($9 x 4,800 pounds) Cost per batch (without further processing) ($5 x 4,800 pounds) Cost per batch of further processing into Decaf Columbian Total costs per batch, if processed further ($24,000+ $10,243) $43,200 $24,000 $10,243 $34,243 Total quantity per batch Less: Loss due to evaporation (4,800 x 5%) Total quantity per batch, after further processing 4,800 pounds (240) pounds 4,560 pounds Revenue per batch (after further processing) ($12 x 4,560 pounds) $54,720 Required (a): Differential Analysis dated October 6 Differential Analysis Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2) October 6 Sell Regular Columbian (Alternative 1) Process Differential Further into Effect Decaf Columbian on Income (Alternative 2) Revenues Costs Income (Loss) $43,200 ($24,000) $19,200 $54,720 ($34,243) $20,477 $11,520 ($10,243) $1,277 Required (b): The Zing coffee should process further and sell Decaf Columbian, as it would result into incremantal gain of $1,277. Sell Columbian coffee Process further and sell Decaf Columbian ✓ Required (c): Price of Decaf Columbian Revenue per batch (if sold as Regular Columbian) ($9 x 4,800 pounds) Add: Cost per batch of further processing into Decaf Columbian Total Pounds per batch, after further processing into Decaf Columbian Price per pound of Decaf Columbian ($53,443 / 4,560 pounds) $43,200 $10,243 $53,443 4,560 $11.72 Price of Decaf Columbian | $11.72