A business in the food industry is currently holding 2.000 tonnes of material in bulk storage. This material deteriorates with time. In the near future, it will, therefore, be necessary for it to be repackaged for sale or sold in its present form. The material was required in two batches: 800 tonnes at a price of 40 a tonne and 1.200 tonnes at a price of 44 a tonne. The current market price of any additional purchase is 48 a tonne. If the business were to dispose of the material, in its present state, it could sell any quantity but for only 36 a tonne; it does not have the contacts or reputation to command a higher price. Processing this material may be undertaken to develop either Product A or Product X. No weight loss occurs with the processing, that is, 1 tonne of the material will make 1 tonne of A or X. For Product A, there is an additional cost 60 a tonne, after which it will sell for 105 a tonne. The marketing department estimates that a maximum of 500 tonnes could be sold in this way. With product X, the business incurs additional costs of 80 a tonne for processing. A market price for X is not known and no minimum price has been agreed. The management is currently engaged in discussions over the minimum price that may be charged for product X in the current circumstances. Management wants to know the relevant cost per tonne for product X so as to provide a basis for negotiating a profitable selling price for the product. Required: Identify the relevant cost per tonne for product X, given sales volumes of X of: a) up to 1.500 tonnes b) over 1.500 tonnes, up to 2.000 tonnes c) over 2.000 tonnes. Explain your answer. A business in the food industry is currently holding 2.000 tonnes of material in bulk storage. This material deteriorates with time. In the near future, it will, therefore, be necessary for it to be repackaged for sale or sold in its present form. The material was required in two batches: 800 tonnes at a price of 40 a tonne and 1.200 tonnes at a price of 44 a tonne. The current market price of any additional purchase is 48 a tonne. If the business were to dispose of the material, in its present state, it could sell any quantity but for only 36 a tonne; it does not have the contacts or reputation to command a higher price. Processing this material may be undertaken to develop either Product A or Product X. No weight loss occurs with the processing, that is, 1 tonne of the material will make 1 tonne of A or X. For Product A, there is an additional cost 60 a tonne, after which it will sell for 105 a tonne. The marketing department estimates that a maximum of 500 tonnes could be sold in this way. With product X, the business incurs additional costs of 80 a tonne for processing. A market price for X is not known and no minimum price has been agreed. The management is currently engaged in discussions over the minimum price that may be charged for product X in the current circumstances. Management wants to know the relevant cost per tonne for product X so as to provide a basis for negotiating a profitable selling price for the product. Required: Identify the relevant cost per tonne for product X, given sales volumes of X of: a) up to 1.500 tonnes b) over 1.500 tonnes, up to 2.000 tonnes c) over 2.000 tonnes. Explain your
