Question

Sell or Process Further

Rise N’ Shine Coffee Company produces Columbian coffee in batches of 5,200 pounds. The standard quantity of materials required in the process is 5,200 pounds, which cost $5 per pound. Columbian coffee can be sold without further processing for $8.4 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $10 per pound. The processing into Decaf Columbian requires additional processing costs of $9,650 per batch. The additional processing will also cause a 6% 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).

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 Rise N’ Shine 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 a:

Differential Analysis
Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2)
Oct-06
	Sell Regular Columbian	Process Further into Decaf Columbian	Differential Effect on Income
	(Alternative 1)	(Alternative 2)	(Alternative 2)
Revenues	43680	48880	5200
Costs		9650	-9650
Income (Loss)	43680	39230	-4450

2. General - - Home Insert Page Layout Excel Poo-1.1 - Microsoft Excel - 7 X File Formulas Dala Review View $ 1 Calculate Now Insert Function More Functions AutoSum Recently Financial Logical Text Date & Lookup & Math & Used Time Reference Trig Function Library F24 - for Detine Name - Use in Formula Nome Manager Create from Selection Defined Names Trace Precedents Show Formulas Trace Dependents Error Checking Watch Remove Arrows ) Evaluate Formula Window Formula Auditing Calculation calculate Sheet Options Calculation Differential Analysis Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2) 29999 4285 38991 Revenues Costs Income (Loss) Sell Regular Columbian Process Further into Decaf Columbian (Alternative 1) (Alternative 2) =5200*8.4 =5200*94% 10 -9650 =E20-E21 =F20-F21 Differential Effect on Income (Alternative 2) =F20-E20 =E21-F21 =G20+G21 32 33 34 R Sheet777 Ready Circular References M Sheet183 (8) Sheet779 Sheet780 Sheet106 (17) Sheet369 (2) Sheet783 Sheet784 Sheet H O Type here to search RATA E 06-42 ENG 25-11-2019 2

Solution b:

Rise N’ Shine should sell Columbian coffee.

Solution c:

Loss to be recovered = $4450

Units of Decaf Columbian = 5200 *94% = 4888 units

New Price should be = $10 + ($4450/ 4888) = $10.91 per pound