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Mizzou Mining Company E16-4 Sell or process furt

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E16-4 Sell or process further?

Mizzou Mining Company mines an iron ore called Alpha. During the month of December, 400,000 tons of Alpha were mined and processed at a cost of $742,500. 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:

Delta Super Delta Pi Precision Pi
Selling price $7/ton $15/ton $12/ton $24/ton
________________________________________

Processing costs to refine Delta into Super Delta are $2,400,000: processing costs to refine Pi into Precision Pi are $1,600,000.
Requirement 1:
(a) What would be the incremental profit or loss per unit if Delta is refined into Super Delta? (Input the amount as positive value. Omit the "$" sign in your response.)

Incremental
$

(b) What would be the incremental profit or loss per unit if Pi is refined into Precision Pi? (Omit the "$" sign in your response.)

Incremental
$

Requirement 2:
(a) Should Delta be sold as is or refined into Super Delta?

(b) Should Pi be sold as is or refined into Precision Pi?

Requirement 3:
Identify any costs in the problem that are not relevant to this decision.

Requirement 4:
What is the maximum profit that Mizzou Mining Company can expect to earn from the production of the 400,000 tons of Alpha? (Omit the "$" sign in your response.)

Maximum profit $

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Solution Summary

Your tutorial is four schedules showing you how to evaluate these two process-further decisions. Instructional comments are added on the spreadsheet.

Solution provided by:
Carol Sargent, PhD
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  • MSc, University of Virginia
  • PhD, Georgia State University
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