Q1) Missou Mining Company mines an iron ore called Alpha. In the month of December, 400,000 tons of Alpha were mined and processed at cost of $742,500. As Alpha ore ismined, 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 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 refin Delta into Super Delta are $2,400,000; processing costs to refine Pi into Precision Pi are $1,600,000
Questions:
a. Should Delta and Pi be sold as is or refined into Super Delta and Precision Pi?
b. Recognize any costs in the problem which are not relevant to this decision
c. Determine the maximum profit that Missou Mining Company can expect to earn from production of 400,000 tons of Alpha?