Question

Sell or Process Further Abica Coffee Company produces Columbian coffee in batches of 6,200 pounds. The standard quantity of materials required in the process is 6,200 pounds, which cost $6 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 $12,288 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 Process Differential Further into Regular Effect Decaf Columbian on Income Columbian (Alternative 1) (Alternative 2) (Alternative 2) Revenues Sell Costs Income (Loss) b. Should Abica 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

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

EF Answer Parta) Differential Analysis Sell Regular Columbian (alt.1) or Process Further into Deaf Columbian (alt. 2) October. 6 Process Further Differential Sell Regular Into Decaf Effect on Columbian Columbian Income (alternative 1) (alternative 2) (alternative2) Revenues 55800 70680 14880 (6200*9) (6200*95%*12) Costs 37200 49488 -12288 (6200*6) (37200+12288) Income (Loss) 18600 21192 2592 Id amounts are not part of final answer and are just for understanding only. Part B) It should Process further and sell decaf columbian Explanation Because it has positive impact on net income, as net income increases. Partc) Income of regular columbian = (6200*95%* selling Price) - Total cost 18600 = (5890*selling price) - 49488 (18600+49488)/5890= selling price $ 11.56 = selling price Thus the correct answer is $ 11.56 per pound