Abilene Meat Processing Corporation is a major processor of beef and other meat products

Sell or Process Further

 

Abilene Meat Processing Corporation is a major processor of beef and other meat products. The company has a large amount of T-bone steaks as is or to process them further into filet mignon and New York cut steaks.

 

 Management believes that a 1-pound T-bone steak would yield the following profit:

 

Wholesale selling price ($2.25 per pound)                               $2.25

 

 Less joint costs incurred up to the split-off point where

 

 T-bone steak can be identified as a separate product             1.70

 

 Profit per pound                                                                            $0.55

 

As mentioned above, instead of being sold as is, the T-bone steaks could be further processed into filet mignon and New York cut steaks. Cutting one side of a T-bone steak provides the filet mignon, and cutting the other side provides the New York cut. One 16-ounce T-bone steak cut in this way will yield one 6-ounce filet mignon and one 8-ounce New York cut; the remaining ounces are waste. The cost of processing the T-bone steaks into these cuts can be sold wholesale for $.20 per pound. The filet mignon can be sold for $3.60 per pound, and the New York cut can be sold wholesale $2.90 per pound.
Required:

 

 1. Determine the profit per pound from processing the T-bone steaks further into filet mignon and New York cut steaks.

 

 

2. Would you recommend that the T-bone steaks be sold as is or processed further? Why?
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