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    Sell or Process Decision at Zeppe Inc.

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    Zeppe Inc. purchased potatoes from farmers. The potatoes are then peeled, producing two intermediate products- peeled and depeeled spuds. The peels can then be processed further to make a cocktail of organic nurtrients. And the depeeled spuds can be processed further to make frozen french fries. A batch of potatoes cost $63 to buy them from farmers and $12 to peel in the company's plant. The peels produced from a batch can be sold as is for animal feed for $29 or processed further for $15 to make the cocktail of nutrients that are sold for $41. The depeeled spuds can be sold as is for $40 or processed further for $22 to make frozen french fries that are sold for $77.

    Assuming that no other costs are involved in processing potatoes or in selling products, how much money does the company make from processing one batch of potatoes into the cocktail of organic nutrients and frozen french fries. Work must be shown.

    Do an analysis of sell or process further. Should each of the immediate products, peels and depeeled spuds, be sold as is or processed further into an end product? Explain.

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    Solution Preview

    1. For analyzing the profitability of the overall operation, following profit loss statement is prepared:
    Combined final sales value=Sale value of cocktail of nutrients+Sale value of frech fries=$41+$77=$118
    Less: Costs of producing the end products:
    Cost of potatoes=$63
    Cost of ...

    Solution Summary

    The solution explains how to evaluate the decison to sell now or process further with calculations and answers.