Cornerstone Exercise 17.4 (Algorithmic)

Sell at Split-Off or Process Further Decision, Alternatives, Relevant Costs

Betram Chemicals Company processes a number of chemical compounds used in producing industrial cleaning products. One compound is decomposed into two chemicals: anderine and dofinol. The cost of processing one batch of compound is $74,500, and the result is 6,300 gallons of anderine and 8,200 gallons of dofinol. Betram Chemicals can sell the anderine at split-off for $12.00 per gallon and the dofinol for $7.45 per gallon. Alternatively, the anderine can be processed further at a cost of $8.70 per gallon (of anderine) into cermine. It takes 3 gallons of anderine for every gallon of cermine. A gallon of cermine sells for $62.

Required:

1.Which alternative is more cost effective and by how much? Do NOT round interim calculations and, if required, round your answer to the nearest cent.

- Select your answer -

Sell at split-off

Process it further

Item 1

by $

2.What ifthe production of anderine into cermine required additional purchasing and quality inspection activity? Every 590 gallons of anderine that undergo further processing require 18 more purchase orders at $9 each and 13 more quality inspection hours at $25 each. Which alternative would be better and by how much? Do NOT round interim calculations and, if required, round your answer to the nearest cent.

- Select your answer -

Sell at split-off

Process it further

Item 3

by $