Gypsum Powders makes four compounds for dogs o of one raw material, Just Gyp—tick powder, flea powder, itch powder, and talcum powder. The company makes 200,000 pounds of Just Gyp per year. It has recently been approached by an outside customer who would like to buy the talcum powder before it has been fully processed. The company could also sell the other powders at an earlier stage of production. The volumes and prices for the various products if sold at the split-o point (when we go from raw material to four different products) vs. if processed further are included in the table below. If processed further, the company needs to add one half-pound of filler for every pound of product at a cost of $0.30 per pound. It also needs to package the product, which costs $0.20 in materials per quarter pound of Just Gyp material and $0.10 in labor per unit of finished product (one quarter-pound of the product with its filler). Hint: We add the filler so there is more final product in total pounds. One pound of Just Gyp makes 1.5 pounds of final product.

REQUIRED:

a. Perform an incremental analysis of this opportunity for Gypsum Powders. Do the analysis in total dollars for the year under each alternative.

b. Should it make or continue to buy these products? Why?

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Cost per Pound at Price per Pound at Price per Pound if Product Pounds Made Split-Off Point Split-Off Processed Point Further Tick Powder 100,000 $1.50 $2.00 $3.50 Flea Powder 50,000 $1.75 $2.50 $4.00 Itch Powder 40,000 $1.00 $1.50 $2.25 Talcum Powder 10,000 $0.50 $1.00 $2.00