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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Sell or process further

Bozeman Coffee Company produces Columbian coffee in batches of 10,000 pounds. The standard quantity of materials required in the process is 10,000 pounds, which cost $3.50 per pound. Columbian coffee can be sold without further processing for $8.00 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $9.50 per pound. The processing into Decaf Columbian requires additional processing costs of $7,500 per batch. The additional processing will also cause a 3% loss of product due to evaporation.
a.Prepare a differential analysis report for the decision to sell or process further.
b.Should Bozeman Coffee sell Columbian coffee or process further and sell Decaf Columbian?
c.Determine the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian. Round to nearest cent.

To determine

(a)

Concept Introduction:

Differential Analysis Report: This report involves analyzing the different benefit and cost that would arise from an alternative solution to a particular problem. It is also known as incremental analysis.

To Prepare:

The differential analysis report for taking decisions to sell or process further.

Explanation

Company produces columbian coffee in batches of 10,000 pounds.

If company processed it further into Decaf columbian, then additional processing cost is $7,500 per batch and it will also incur a loss of 3% product during furter process.

Total Revenue from Columbian coffee is:

  Revenue=10,000×$8=$80,000

Total production of Decaf Coffee is:

  Production=10,000(10,000×3%)=9,700

Total revenue from Decaf coffee is:

  Revenue=9,700×$9

To determine

(b)

Concept Introduction:

Differential Analysis Report: This report involves analyzing the different benefit and cost that would arise from an alternative solution to a particular problem. It is also known as incremental analysis.

To Find out:

Whether it is beneficial for company either to further processing or not.

To determine

(c)

Concept Introduction:

Differential Analysis Report: This report involves analyzing the different benefit and cost that would arise from an alternative solution to a particular problem. It is also known as incremental analysis.

To find out:

The net advantage or disadvantage after further processing and selling Decaf Coffee.

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