The Sinclair Spirits Division of the Pilgrim Company produces two products— turpentine and methanol (wood alcohol)—by a joint process. Joint costs amount to $ 116,000 per batch of output. Each batch totals 13,000 gallons: 25% methanol and 75% turpentine. Both products could be processed further without gain or loss in volume. Separable processing costs are $ 2 per gallon for methanol and $ 1 per gallon for turpentine. Methanol sells for $ 20 per gallon. Turpentine sells for $ 15 per gallon.

1. The company has discovered an additional process by which it can turn the methanol (wood alcohol) into a pleasant- tasting alcoholic beverage. The selling price of this beverage would be $ 45 a gallon. Additional processing would increase separable costs $ 6 per gallon (in addition to the $ 2 per gallon separable cost required to yield methanol). The company would have to pay excise taxes of 20% on the selling price of the beverage. Should the company produce the alcoholic beverage? Show your computations.
2. Describe a situation where the decision model might conflict with the performance- evaluation model.

  • CreatedJanuary 15, 2015
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