Question

Swagger Corporation purchases potatoes from farmers. The potatoes are then peeled, producing two intermediate products-peels and depeeled spuds. The peels can then be processed further to make a cocktail of organic nutrients. And the depeeled spuds can be processed further to make frozen french fries. A batch of potatoes costs $48 to buy from farmers and $14 to peel in the company's plant. The peels produced from a batch can be sold as is for animal feed for $30 or processed further for $19 to make the cocktail of nutrients that are sold for $50. The depeeled spuds can be sold as is for $41 or processed further for $30 to make frozen french fries that are sold for $62.
Required:

a. Assuming that no other costs are involved in processing potatoes or in selling products, how much money does the company make from processing one batch of potatoes into the cocktail of organic nutrients and frozen french fries?
b. Should each of the intermediate products, peels and depeeled spuds, be sold as is or processed further into an end product?

Answer 1

Answer:

(a) $1

(b)  NO, Because it results in a loss of $9

Explanation:

As per the data given in the question,

a)

Sales value ($62+$50) $112

Less: Total costs

Potatoes cost $48

Peeling cost $14

Cost of further processing peels $19

Cost of further depeeled spuds $30

Profit ($112-$48-$19-$14-$30) $1

b)

Cocktail of organic nutrients = Yes, Because it results in a profit of $1 ($50-$19-$30)

Frozen french fries = NO, Because it results in a loss of $9 ($62-$41-$30)