Godfrey Drug Corporation buys three chemicals that are processed to produce two popu¬ lar ingredients for over-the-counter drugs. The purchased chemicals are blended for two to three hours and then heated for fifteen minutes. The results of the process are two separate chemicals, Xyrene and Yanadrene, which are sent to a drying room until their moisture con¬ tent is reduced to 6 to 8 percent. For every 1,100 pounds of chemicals used, 500 pounds of each chemical are produced. After drying, Xyrene and Yanadrene are sold to companies that process them into their final form. The selling prices are $10 per pound for Xyrene and $25 per pound for Yanadrene. The costs to produce 500 pounds of each chemical are as follows:

The chemicals are packaged in 25-pound bags and shipped. The cost of each bag is $0.75.
Shipping costs $0.10 per pound.
Godfrey Company could process Xyrene further by grinding it into a fine powder and then molding the powder into tablets. The tablets can be sold directly to retail drug stores as a generic brand. If this route is taken, the revenue received per bottle of tablets would be $3.00, with five bottles produced by every pound of Xyrene. The costs of grinding and tableting total $2.50 per pound of Xyrene. Bottles cost $0.20 each. Bottles are shipped in boxes that hold twenty-five at a shipping cost of $1.00 per box.
Required:
1. Should Godfrey sell Xyrene atsplit-off, orshould Xyrene be processed and sold astablets?
2. If Godfrey normally sells 180,000 pounds of Xyrene per year, what will be the differ¬
ence in profits if Xyrene is processed further?

Transcribed Image Text:

Chemicals $5,500 Direct labor 4,500 Overhead 3,500