Question 1 (5 points)

All amounts given are on a per batch basis.

Jones Company purchases potatoes from farm distributors at a price of $93.00, after which the potatoes are peeled, at a cost of $15, resulting in two intermediate products:

• Potato peels, that can be sold as food for pigs for $35.
• Peeled potatoes that can be sold as food for human consumption for $45.
• Instead of selling the potato peels as food for pigs, Jones can spend an additional $15 to turn the peels into organic nutrients that can be sold for $43.
• Instead of selling the peeled potatoes as is, Jones can spend an additional $24 to turn the potatoes into French fries and sell them for $80.

Required

a. Assume Jones buys 100 batches of potatoes, based on the information above, what is the dollar amount of joint costs related to processing the 100 batches of potatoes?

b. What is the financial advantage (disadvantage) of processing the potato peels into organic nutrients (rather than selling them as food for pigs)?

c. What is the financial advantage (disadvantage) of processing the peeled potatoes into french fries (rather than selling them as plain peeled potatoes)?

d. Assuming Jones processes the potatoes so as to recognize all financial advantages, what is Jones net income for the 100 batches?

Question # 2 (5 points)

Bardo, Inc. produces three products. Data concerning the selling prices and variable costs of the three products, along with the amount of milling time needed to produce a unit, appear below:

	Product
	F			G		H
Selling price	$	50	$		80	$	70
Variable costs	$	40	$		50	$	55
Milling machine time (hours)		2			5		5

Demand for the three products exceeds the company's productive capacity. The milling machine is the constraint, with only 2,400 hours of milling machine time available this week.

Required:

a. Given the milling machine constraint and unlimited demand for each product, which product should be sold?

b. Assuming that there is still unfilled demand for the product selected above, how much should the company be willing to pay for an additional hour of milling machine time?

c. Assume demand for the products was: 300 units of F, 600 units of G, and 400 units of H. Also, assume there is no possibility of paying overtime or otherwise relaxing the milling machine constraint of only 2,400 hours of milling time. What combination of products should Bardo sell (i.e. how many units of each product) to maximize income?

d. Selling the number of units of each product determined in question (c), what is Bardos net income, assuming fixed costs are$5,000?