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1. amount spent to refine acetone/cost of further processing

2. does/does not

3. #

4. relevant/irrelevant

Castillo Chemical has spent $246,000 to refine 72,000 gallons of acetone, Requirements which can be sold for $2.60 a gallon. Alternatively, Castillo Chemical can 1. Identify the sunk cost. Is the sunk cost relevant to Castillo's decision? Why process the acetone further. This processing will yield a total of 59,000 gallons or why not? of lacquer thinner that can be sold for $3.20 a gallon. The additional processing 2. Should Castillo sell the acetone as is or process it into lacquer thinner? will cost $0.80 per gallon of lacquer thinner. To sell the lacquer thinner, Castillo Chemical must pay shipping of $0.20 a gallon and administrative expenses of Show the expected net revenue difference between the two alternatives. $0.13 a gallon on the thinner. Requirement 1. Identify the sunk cost. Is the sunk cost relevant to Stenback's decision? Why or why not? The amount spent to refine the acetone is a sunk cost that does not differ between alternatives of selling as is or processing further. Consequently, this sunk cost of $ 246,000 is irrelevant to the sell or process further decision. Requirement 2. Should Stenback sell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. (Enter a "0" for any zero amounts. Use a minus sign or parentheses in the Difference column if the Sell As Is amount exceeds the Process Further amount.) Process As Is Further Difference Sales revenue 175,200 $ 191,400 $ 16,200 Less: Additional processing costs to convert lacquer thinner 52,200 52,200 $ 175,200 $ 139,200 $ (36,000) Net benefit to operating income per batch Sell Decision: Sell acetone as is