Sell or Process Further, Basic AnalysisCarleigh, Inc., is a pork processor. Its plants, located in the Midwest, produce several products from a common process: sirloin roasts, chops, spare ribs, and the residual. The roasts, chops, and spare ribs are packaged, branded, and sold to supermarkets. The residual consists of organmeats and leftover pieces that are sold to sausage and hot dog processors. The joint costs for a typical week are as follows:Direct materials$85,500Direct labor25,000Overhead26,000The revenues from each product are as follows: sirloin roasts, $75,000; chops, $70,500; spare ribs, $30,000; and residual, $8,400.Carleigh's management has learned that certain organ meats are a prized delicacy in Asia. They are considering separating those from the residual and selling them abroad for $59,000. This would bring the value of the residual down to $2,450. In addition, the organ meats would needto be packaged and then air freighted to Asia. Further processing cost per week is estimated to be $31,000 (the cost of renting additional packaging equipment, purchasing materials, and hiring additional direct labor). Transportation cost would be $10,200 per week. Finally, resourcespending would need to be expanded for other activities as well (purchasing, receiving, and internal shipping). The increase in resource spending for these activities is estimated to be $3,050 per week.Required:1. What is the gross profit earned by the original mix of products for one week?2. Should the company separate the organ meats for shipment overseas or continue to sell them at split-off?What is the effect of the decision on weekly gross profit?by $

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Asked Nov 8, 2019
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Sell or Process Further, Basic Analysis
Carleigh, Inc., is a pork processor. Its plants, located in the Midwest, produce several products from a common process: sirloin roasts, chops, spare ribs, and the residual. The roasts, chops, and spare ribs are packaged, branded, and sold to supermarkets. The residual consists of organ
meats and leftover pieces that are sold to sausage and hot dog processors. The joint costs for a typical week are as follows:
Direct materials
$85,500
Direct labor
25,000
Overhead
26,000
The revenues from each product are as follows: sirloin roasts, $75,000; chops, $70,500; spare ribs, $30,000; and residual, $8,400.
Carleigh's management has learned that certain organ meats are a prized delicacy in Asia. They are considering separating those from the residual and selling them abroad for $59,000. This would bring the value of the residual down to $2,450. In addition, the organ meats would need
to be packaged and then air freighted to Asia. Further processing cost per week is estimated to be $31,000 (the cost of renting additional packaging equipment, purchasing materials, and hiring additional direct labor). Transportation cost would be $10,200 per week. Finally, resource
spending would need to be expanded for other activities as well (purchasing, receiving, and internal shipping). The increase in resource spending for these activities is estimated to be $3,050 per week.
Required:
1. What is the gross profit earned by the original mix of products for one week?
2. Should the company separate the organ meats for shipment overseas or continue to sell them at split-off?
What is the effect of the decision on weekly gross profit?
by $
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Sell or Process Further, Basic Analysis Carleigh, Inc., is a pork processor. Its plants, located in the Midwest, produce several products from a common process: sirloin roasts, chops, spare ribs, and the residual. The roasts, chops, and spare ribs are packaged, branded, and sold to supermarkets. The residual consists of organ meats and leftover pieces that are sold to sausage and hot dog processors. The joint costs for a typical week are as follows: Direct materials $85,500 Direct labor 25,000 Overhead 26,000 The revenues from each product are as follows: sirloin roasts, $75,000; chops, $70,500; spare ribs, $30,000; and residual, $8,400. Carleigh's management has learned that certain organ meats are a prized delicacy in Asia. They are considering separating those from the residual and selling them abroad for $59,000. This would bring the value of the residual down to $2,450. In addition, the organ meats would need to be packaged and then air freighted to Asia. Further processing cost per week is estimated to be $31,000 (the cost of renting additional packaging equipment, purchasing materials, and hiring additional direct labor). Transportation cost would be $10,200 per week. Finally, resource spending would need to be expanded for other activities as well (purchasing, receiving, and internal shipping). The increase in resource spending for these activities is estimated to be $3,050 per week. Required: 1. What is the gross profit earned by the original mix of products for one week? 2. Should the company separate the organ meats for shipment overseas or continue to sell them at split-off? What is the effect of the decision on weekly gross profit? by $

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Expert Answer

Step 1
  1. Compute gross profit earned by original mix of products as shown below:
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Amount (S) Amount (S) Particulars Revenues from products (S75,000+S70,500+$30,000+S8,400) Less: Costs Direct materials Direct labor Overhead Total cost of goods sold Gross profit $183,900 $85,500 $25,000 $26,000 $136,500 $47,400

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Step 2

2. Compute difference in gross profit to separate the organ for shipment or to sell at split off as shown below:

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C D E F Difference in revenue and cost $53,050 44250 $8,800 Process At split off 15 Particulars further 16 Revenues 17 Less: Processing cost 18 Gross profit $61,450 S8,400 44250 S8,400 $17,200

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