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 $1,600,000.
(a) What would be the incremental profit or loss per unit if Delta is refined into Super Delta? (Input the amount as positive value. Omit the "$" sign in your response.)
(b) What would be the incremental profit or loss per unit if Pi is refined into Precision Pi? (Omit the "$" sign in your response.)
(a) Should Delta be sold as is or refined into Super Delta?
(b) Should Pi be sold as is or refined into Precision Pi?
Identify any costs in the problem that are not relevant to this decision.
What is the maximum profit that Mizzou Mining Company can expect to earn from the production of the 400,000 tons of Alpha? (Omit the "$" sign in your response.)
Maximum profit $
Your tutorial is four schedules showing you how to evaluate these two process-further decisions. Instructional comments are added on the spreadsheet.