Question
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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