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(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.
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| Management believes that a 1-pound T-bone steak would yield the following profit: |
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| Wholesale selling price ($2.20 per pound) |
$ |
2.20 |
Less joint costs incurred up to the split-off point where
T-bone steak can be identified as a separate product |
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1.35 |
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| Profit per pound |
$ |
0.85 |
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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 $0.17 per pound. The filet mignon can be sold for $4.00 per pound, and the New York cut can be sold wholesale for $3.90 per pound.
What is the less revunue from one t-bone steak?
total Revunue is 3.45
Less rev. from t-bone steak =?
Incremental revunue from further processing=?