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Holes Company: Variable Costs

The Holes Company realizes 3 products from a single mining process: Products A1, A2, and A3. Each product may be sold as is in its raw form or processed further into a more refined state. The additional processing requires no expanded capacity and production costs are entirely variable. Sales values and cost information are:

Product A1 -- Units Produced = 14,000 -- Sales Value As Is = $60,000 -- If Processed Further: Sales Value = $100,000 -- Additional Costs = $22,000

Product A2 -- Units Produced = 10,000 -- Sales Value As is = $100,000 -- If Processed Further: Sales Value = $108,000 -- Additional Costs = $16,000

Product A3 -- Units Produced = 6,000 -- Sales Value As is = $58,000 -- If Processed Further: Sales Value = $78,000 -- Additional Costs = $20,000

Decide whether the Holes Company should sell each product as is or after further processing.

Solution Preview

The Holes Company realizes 3 products from a single mining process: Products A1, A2, and A3. Each product may be sold as is in its raw form or processed further into a more refined state. The additional processing requires no expanded capacity and production costs are entirely variable. Sales values and cost information are:

Product A1 -- Units Produced = ...

Solution Summary

Whether a company should invest in further processing is determined.

$2.19