Sell or Process Further Decision
Severco Mining processes a newly discovered mineral (Burgo) into joint products Alpha1 and Beta2. The Raw Material Burgo costs $15 per pound. It costs $125 to convert 100 pounds of Burgo into 60 pounds of Alpha1 and 40 pounds of Beta2.
Product Alpha1 can be sold immediately at a cost of $15 per pound or it can be processed further into a new product Alpha-Plus at an extra cost of $8 per pound. The Alpha-Plus can then be sold at a price of $35 per pound.
Product Beta2 can be sold immediately at a cost of $14 per pound or it can be processed further into a new product Beta-Plus at an extra cost of $22 per pound. The Beta-Plus can then be sold at a price of $30 per pound.
Requirement 1:)Determine whether the company should sell Alpha1 as is or spend the extra money to convert it to Alpha-Plus and sell it that way.
Requirement 2:) Determine whether the company should sell Beta2 as is or spend the extra money to convert it to Beta-Plus and sell it that way.