Consider the profit per pound from processing

Question

(Prepared from a situation suggested by Professor John W. Hardy.) Abilene Meat Processing Corporation 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 is or to process them further into filet mignon and New York cut steaks.

Management believes that a 1-pound T-bone steak would yield the following profit:

Wholesale selling price ($2.00 per pound)	$	2.00
Less joint costs incurred up to the split-off point where     T-bone steak can be identified as a separate product		1.20
Profit per pound	$	0.80

As mentioned above, instead of being sold as is, the T-bone steaks could be further processed into filet mignon and New York cut steaks. Cutting one side of a T-bone steak provides the filet mignon, and cutting the other side provides the New York cut. A one pound (16-ounce) T-bone steak cut in this way will yield one 6-ounce filet 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 $0.19 per pound. The filet mignon can be sold for $4.00 per pound, and the New York cut can be sold wholesale for $3.80 per pound.

Required:

1.	Determine the profit per pound from processing the T-bone steaks further into filet mignon and New York cut steaks. (Negative and loss amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Profit per pound from further processing

$

2.	Would you recommend that the T-bone steaks be sold as is or processed further?
	T-bone steaks should be processed further. T-bone steaks should be sold.