(Prepared from a situation suggested by Professor John W. Hardy.) Lone Star...
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Accounting
Prepared from a situation suggested by Professor John W Hardy. Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of Tbone steak on hand and is deciding whether to sell the Tbone steaks as they are initially cut or process them further into filet mignon and the New York cut.
If the Tbone steaks are sold as initially cut, the company figures a pound Tbone steak yields the following profit:
Selling price $ per pound $
Less joint costs incurred up to the splitoff point where Tbone steak can be identified as a separate product
Profit per pound $
If the company further processes the Tbone steaks, then one ounce Tbone steak will yield one ounce filet mignon, one ounce New York cut, and two ounces of waste. It costs $ to further process one Tbone steak into the filet mignon and New York cuts. The filet mignon can be sold for $ per pound, and the New York cut can be sold for $ per pound.
Required:
What is the financial advantage disadvantage of further processing one Tbone steak into filet mignon and New York cut steaks?
Would you recommend the Tbone steaks be sold as initially cut or processed further?
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