Question: Joint costs and decision making. Jack Bibby is a prospector in the Texas Panhandle. He has also been running a side business for the past couple of years. Based on the popularity of shows such as "Rattlesnake Nation," there has been a surge of interest from professionals and amateurs to visit the northern counties of Texas to capture snakes in the wild. Jack has set himself up as a purchaser of these captured snakes. Jack purchases rattlesnakes in good condition from "snake hunters" for an average of $11 per snake. Jack produces canned snake meat, cured skins, and souvenir rattles, although he views snake meat as his primary product. At the end of the recent season, Jack Bibby evaluated his financial results:
The cost of snakes is assigned to each product line using the relative sales value of meat, skins, and rattles (i.e., the percentage of total sales generated by each product). Processing expenses are directly traced to each product line. Overhead costs represent Jack's basic living expenses. These are allocated to each product line on the basis of processing expenses. Jack has a philosophy of every product line paying for itself and is determined to cut his losses on rattles.
1. Should Jack Bibby drop rattles from his product offerings? Support your answer with computations.
2. An old miner has offered to buy every rattle "as is" for $0.60 per rattle (note: "as is" refers to the situation where Jack only removes the rattle from the snake and no processing costs are incurred). Assume that Jack expects to process the same number of snakes each season. Should he sell rattles to the miner? Support your answer with computations.