Problem #3 - split off cost decisions. Once again back atVandelay Industries which makes latex products. You have spent$60,000 on your latest production run of 6,000 gallons of liquidlatex when a customer offers you $84,000 to buy the 6,000gallons. Normally at this point of production you split off latexand make your three products with further processing - Basic,Special and Sky is the Limit.• You normally use 3,000 gallons for one batch of Basic andadditional processing costs are $7,000 per batch and you sellBasic for $17/gallon.• You normally use 2,000 gallons for one batch of Specialwhich requires additional processing costs of $10,500 perbatch and you sell Special for $21/gallonYou normally use 1,000 gallons for one batch of Sky is theLimit which requires additional processing costs of $12,000per batch and you normally sell Sky is the Limit for$27/gallon.Your customer has indicated it is an "all or nothing" offer, youmust accept and sell all 6,000 gallons or reject. What should youdo if you are wanting to maximize your profits, accept their offeror continue to process?O Reject because you would have total profit of $30,500O Accept because you would have a total profit of $84,000O Accept because you would have a total profit of $22,000O Reject because you would have total profit of $90,500 Problem #4 - using the same information as Question #3, wouldyour answer be different if it was not an "all or nothing" offer? Inother words, what if the customer would pay you $14 per gallonfor as much as you would be willing to sell them? You could sellthem some or most and keep enough to produce one or two ofyour products. If you choose to produce only one product,choose the one which will give you the highest net income.You have spent $60,000 on your latest production run of 6,000gallons of liquid latex when a customer offers you $84,000 tobuy the 6,000 gallons. Normally at this point of production yousplit off latex and make your three products with furtherprocessing - Basic, Special and Sky is the Limit.• You normally use 3,000 gallons for one batch of Basic andadditional processing costs are $7,000 per batch and you sellBasic for $17/gallon.You normally use 2,000 gallons for one batch of Specialwhich requires additional processing costs of $10,500 perbatch and you sell Special for $21/gallon• You normally use 1,000 gallons for one batch of Sky is theLimit which requires additional processing costs of $12,000per batch and you normally sell Sky is the Limit for$27/gallon.Which option will maximize your net income ?O Produce Special onlyO Produce Basic onlyO Produce Sky is the Limit onlyO Accept the other company's offer

The following table will help us determine the Profit to Vandelay Industries if Latex is sold…

Problem #3 - split off cost decisions. Once again back at Vandelay Industries which makes latex products. You have spent $60,000 on your latest production run of 6,000 gallons of liquid latex when a customer offers you $84,000 to buy the 6,000 gallons. Normally at this point of production you split off latex and make your three products with further processing - Basic, Special and Sky is the Limit. • You normally use 3,000 gallons for one batch of Basic and additional processing costs are $7,000 per batch and you sell Basic for $17/gallon. • You normally use 2,000 gallons for one batch of Special which requires additional processing costs of $10,500 per batch and you sell Special for $21/gallon • You normally use 1,000 gallons for one batch of Sky is the Limit which requires additional processing costs of $12,000 per batch and you normally sell Sky is the Limit for $27/gallon. Your customer has indicated it is an "all or nothing" offer, you must accept and sell all 6,000 gallons or reject. What should you do if you are wanting to maximize your profits, accept their offer or continue to process? Reject because you would have total profit of $30,500 Accept because you would have a total profit of $84,000 O Accept because you would have a total profit of $22,000 Reject because you would have total profit of $90,500

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

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