Alpha-Alpha Inc. produces meat products. Suppose one of the
company’s plants processes beef cattle into various products. For simplicity,
assume that there are only three products—steak, hamburger, and hides—and
that the average steer costs $700. The three products emerge from a process that
costs $100 per cow to run, and output can be sold for the following net amounts:

Assume that each of these three products can be sold immediately or
processed further in another plant. The steak can be the main course in frozen
dinners sold under one label. The vegetables and desserts in the 400 dinners produced
from the 100 kilograms of steak would cost $120, and production, sales,
and other costs for the 400 meals would total $350. Each meal would be sold
wholesale for $2.15.
The hamburger could be made into frozen Salisbury steak patties sold under
a different label. The only additional cost would be a $200 processing cost for the
500 kilograms of hamburger. Frozen Salisbury steaks sell wholesale for $1.70 per
kilogram.
The hides can be sold before or after tanning. The cost of tanning one hide
is $80, and a tanned hide can be sold for $175.
1. Compute the total profit if all three products are sold at the split-off point.
2. Compute the total profit if all three products are processed further
before being sold.
3. Which products should be sold at the split-off point? Which should be
processed further?
4. Compute the total profit if your plan in requirement 3 is followed.

Transcribed Image Text:

Steak (100 kilograms) $400 Hamburger (500 kilograms) 600 Hides (120 kilograms) 100 Total $1,100