The factory is specifically producing two types of butter: salted and unsalted. The salted butter is sold
Question:
The factory is specifically producing two types of butter: salted and unsalted. The salted butter is sold using brand name Tetote (which means salted in Maori language) at $11 per unit and the unsalted is sold using the brand name Koretote (which means unsalted in Maori language) at a price of $14 per unit.
To produce the butter, DSO Dairy requires 5,000 litres of cow milk every month that costs
$16,000. This $16,000 batch cost is allocated to the two products using number of units. Each batch of the cow milk yields 15,000 units of Tetote and 25,000 units of Koretote.
Either product can be processed further. It costs $31,550 to convert 15,000 units of Tetote into 15,000 units of Hauora (which means healthy in Maori). Likewise, it costs $14,320 to
convert 25,000 units of Koretote into 25,000 units of Reka (sweet in Maori). Each unit of Hauora sells for $12, and each unit of Reka sells for $16.
Prepare a financial statement assuming Tetote and Koretote are sold and not processed further. Calculate the profit per batch of each intermediate product that includes the allocated batch cost.
Prepare a financial statement assuming Tetote and Koretote are sold after further processed as Hauora and Reka respectively. Calculate the profit per batch of each Hauora and Reka that includes the allocated batch cost.
Decide whether or not Tetote and Koretote should be processed further into Hauora and Reka. Justify your answer with supporting calculations.