Question

Sell or Process Further Port Allen Chemical Company processes raw material D into joint products E and F. Raw material D costs $12 per liter. It costs $100 to convert 100 liters of D into 60 liters of E and 40 liters of F. Product F can be sold immediately for $12 per liter or processed further into Product G at an additional cost of $10 per liter. Product G can then be sold for $26 per liter. Determine whether Product F should be sold or processed further into Product G. Calculate the net advantage (disadvantage) of further processing. Use a negative sign to indicate a net disadvantage (if applicable). $Answer 0 per liter

Answer 1

Product G should be further process because it brings the net advantage of $4 per litter if Port Allen Chemical Company chooses to further process Product F into Product G.

Step-by-step explanation:

To determine whether Port Allen Chemical should further process from Product F to Product G, we need to define whether the further process brings the company positive net advantages.

- In case further process takes place, we have:

+ Further cost incurred per litter = $10

+ Incremental revenue acquired per litter, that is, difference between unit selling price between Product G and Product F: $26 - $12 = $14

=> Net advantages per litter achieved from further processing = $14 - $10 = $4. => Thus, further process should be carried out.