Question
ADP Mining Company mines an iron ore called Alpha. During the month of August, 175,000 tons of Alpha were mined and processed at a cost
ADP Mining Company mines an iron ore called Alpha. During the month of August, 175,000 tons of Alpha were mined and processed at a cost of $525,000. As the Alpha ore is mined, it is processed into Delta and Pi, where 60% of the Alpha output becomes Delta and 40% becomes Pi. Each product can be sold as is or processed into the refined products Super Delta and Precision Pi. Selling prices for these products are: |
Delta | Super Delta | Pi | Precision Pi | |
Selling price | $12/ton | $18/ton | $25/ton | $35/ton |
Processing costs to refine Delta into Super Delta are $840,000; processing costs to refine Pi into Precision Pi are $560,000. |
Required: |
a-1 | What would be the incremental profit or loss per unit if Delta is refined into Super Delta? |
a-2 | What would be the incremental profit or loss per unit if Pi is refined into Precision Pi? |
a-3 | Should Delta be sold as is or refined into Super Delta? | ||||
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a-4 | Should Pi be sold as is or refined into Precision Pi? | ||||
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b. | Identify any costs in the problem that are not relevant to this decision. | ||||||
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c. | What is the maximum profit that ADP Mining Company can expect to earn from the production of the 175,000 tons of Alpha? |
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