Noble Chemical has spent $240,000 to refine 71,000 gallons of acetone, which can be sold for $2.30 a gallon. Alternatively, Noble Chemical can process the acetone further. This processing will yield a total of 59,000 gallons of lacquer thinner that can be sold for $3.20 a gallon. The additional processing will cost $0.85 per gallon of lacquer thinner. To sell the lacquer thinner, Noble Chemical must pay shipping of $0.24 a gallon and administrative expenses of $0.12 a gallon on the thinner. Requirements: 1. Identify the sunk cost. Is the sunk cost relevant to Noble's decision? Why or why not? 2. Should Noblesell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives.
Noble Chemical has spent $240,000 to refine 71,000 gallons of acetone, which can be sold for $2.30 a gallon. Alternatively, Noble Chemical can process the acetone further. This processing will yield a total of 59,000 gallons of lacquer thinner that can be sold for $3.20 a gallon. The additional processing will cost $0.85 per gallon of lacquer thinner. To sell the lacquer thinner, Noble Chemical must pay shipping of $0.24 a gallon and administrative expenses of $0.12 a gallon on the thinner. Requirements: 1. Identify the sunk cost. Is the sunk cost relevant to Noble's decision? Why or why not? 2. Should Noblesell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 12E: Sell or process further Dakota Coffee Company produces Columbian coffee in batches of 7,500 pounds....
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Noble Chemical can process the acetone further. This processing will yield a total of 59,000 gallons of lacquer thinner that can be sold for $3.20 a gallon. The additional processing will cost $0.85 per gallon of lacquer thinner. To sell the lacquer thinner, Noble Chemical must pay shipping of $0.24 a gallon and administrative expenses of $0.12 a gallon on the thinner.
Requirements:
|
1.
|
Identify the sunk cost. Is the sunk cost relevant to Noble's decision? Why or why not? |
|
2.
|
Should Noblesell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. |
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