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ADP Mining Company mines an iron ore called Alpha. During the month of August, 401,000 tons of Alpha were mined and processed at a cost

ADP Mining Company mines an iron ore called Alpha. During the month of August, 401,000 tons of Alpha were mined and processed at a cost of $743,000. 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 as follows:

Delta

Super Delta

Pi

Precision Pi

Selling price

$

9

/ton

$

16

/ton

$

14

/ton

$

25

/ton

Processing costs to refine Delta into Super Delta are $2,165,400; processing costs to refine Pi into Precision Pi are $1,443,600.

Required:

a-1. What would be the incremental profit or loss per unit if Delta is refined into Super Delta? (Loss amounts should be indicated with a minus sign.)

Incremental Profit (Loss) =

a-2. What would be the incremental profit or loss per unit if Pi is refined into Precision Pi?

Incremental Profit (Loss) =

a-3. Should Delta be sold as is or refined into Super Delta?

Delta should be sold as is.

Delta should be processed further and sold as Super Delta.

a-4. Should Pi be sold as is or refined into Precision Pi?

Pi should be processed further and sold as Precision Pi.

Pi should be sold as is.

b. Identify any costs in the problem that are not relevant to this decision.

The $743,000 cost incurred to produce the Alpha ore is not relevant.

Processing costs to refine Delta into Super Delta are not relevant.

Processing costs to refine Pi into Precision Pi are $1,443,600 not relevant.

c. What is the maximum profit that ADP Mining Company can expect to earn from the production of the 401,000 tons of Alpha?

Max Profit =

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