Sell or Process Further, Basic Analysis Shenista Inc. produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a typical quarter follow: The revenues from each product are as follows: Alpha, $100,000; Beta, $93,000; Gamma, $30,000; and Delta, $40,000. Management is considering processing Delta beyond the split-off point, which would increase the sales value of Delta to $75,000. However, to process Delta further means that the company must rent some special equipment that costs $15,400 per quarter. Additional materials and labor also needed will cost $8,500 per quarter. 1. What is the operating profit earned by the four products for one quarter? $ 2. Conceptual Connection: Should the division process Delta further or sell it at split-off? What is the effect of the decision on quarterly operating profit? Gross profit would by $
Zanda Drug Corporation buys three chemicals that are processed to produce two types of analgesics used as ingredients for popular over-the-counter drugs. The purchased chemicals are blended for two to three hours and then heated for 15 minutes. The results of the process are two separate analgesics, depryl and pencol, which are sent to a drying room until their moisture content is reduced to 6 to 8 percent. For every 1,300 pounds of chemicals used, 600 pounds of depryl and 600 pounds of pencol are produced. After drying, depryl and pencol are sold to companies that process them into their final form. The selling prices are $12 per pound for depryl and $30 per pound for pencol. The costs to produce 600 pounds of each analgesic are as follows:
The analgesics are packaged in 20-pound bags and shipped. The cost of each bag is $1.30. Shipping costs $0.10 per pound.
Zanda could process depryl further by grinding it into a fine powder and then molding the powder into tablets. The tablets can be sold directly to retail drug stores as a generic brand. If this route were taken, the revenue received per bottle of tablets would be $4.00, with 10 bottles produced by every pound of depryl. The costs of grinding and tableting total $2.50 per pound of depryl. Bottles cost $0.40 each. Bottles are shipped in boxes that hold 25 bottles at a shipping cost of $1.60 per box.
1. Conceptual Connection: Should Zanda sell depryl at split-off, or should depryl be processed and sold as tablets? ALREADY ANSWERED THIS PART
2. If Zanda normally sells 265,000 pounds of depryl per year, what will be the difference in profits if depryl is processed further? Do not round intermediate calculations. $________ ONLY NEED THIS PART PLEASE