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# Process further

Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steak
on hand, and it is trying to decide whether to sell the T-bone steaks as they are initially cut or to process them further into fillet Mignon and the New York cut.

If the T-bone steaks are sold as initially cut, the company figures that a 1-pound T-bone steak would yield the following profit:

Selling price (\$2.25 per pound) . . . . . . . . . . . . . . . . . . . . . . . . . . . \$2.25
Less joint costs incurred up to the split-off point where
T-bone steak can be identified as a separate product . . . . . . . . 1.80
Profit per pound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$0.45
As mentioned above, instead of being sold as initially cut, the T-bone steaks could be further
processed into fillet Mignon and New York cut steaks. Cutting one side of a T-bone steak provides
the fillet Mignon, and cutting the other side provides the New York cut. One 16-ounce T-bone
steak cut in this way will yield one 6-ounce fillet Mignon and one 8-ounce New York cut; the
remaining ounces are waste. The cost of processing the T-bone steaks into these cuts is \$0.25 per
pound. The fillet Mignon can be sold for \$4.00 per pound, and the New York cut can be sold for
\$2.80 per pound.
Required:
1. Determine the profit per pound from processing the T-bone steaks into fillet Mignon and New
York cut steaks.
2. Would you recommend that the T-bone steaks be sold as initially cut or processed further?
Why?

#### Solution Preview

a. We need to calculate the incremental revenue and the incremental cost.
Revenue from further processing is
(i) Revenue from filet mignon
Sale price per ounce = 4.00/16 = 0.25 per ...

#### Solution Summary

The solution explains how to decide if a product should be sold at split off or processed further

\$2.19