ADP Mining Company mines an iron ore called Alpha. During the month of August, 401,000...
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ADP Mining Company mines an iron ore called Alpha. During the month of August, 401,000 tons of Alpha were mined and processed at a cost of $743,000. As the Alpha ore is mined, it is processed into Delta and Pi, where 60% of the Alpha output becomes Delta and 40% becomes Pi. Each product can be sold as is or processed into the refined products Super Delta and Precision Pi. Selling prices for these products are as follows:
Delta
Super Delta
Pi
Precision Pi
Selling price
$9/ton
$16/ton
$14/ton
$25/ton
Processing costs to refine Delta into Super Delta are $2,165,400; processing costs to refine Pi into Precision Pi are $1,443,600. Required:
What would be the incremental profit or loss per unit if Delta and Pi are refined into Super Delta and Precision Pi? Should Delta and Pi be sold as is or refined into Super Delta and Precision Pi?
Identify any costs in the problem that are not relevant to this decision.
What is the maximum profit that ADP Mining Company can expect to earn from the production of the 401,000 tons of Alpha?
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