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Castillo Petroleum has spent $202,000 to refine 64.000 galons of petroleum distillate, which can be sold for $6.40 per gallon Alternatively, Castillo can process the

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Castillo Petroleum has spent $202,000 to refine 64.000 galons of petroleum distillate, which can be sold for $6.40 per gallon Alternatively, Castillo can process the distillate further and produce 57,000 gallons of cleaner fuld. The additional processing will cost $1.75 per gallon of distillate. The cleaner fluid can be sold for $9.00 per gallon. To sell cleaner fluid, Castillo must pay a sales commission of 50.10 per gallon and a transportation charge of $0.15 per gallon. Read the requirements Requirement 1. Fill in the diagram for Castillo's alternatives. Revenues from selling as is a Joint costs of producing 64,000 gallons of petroleum distilate Cost of processing further Revenues from processing further Requirements 1. Fill in the diagram for Castille's a tomatives 2. Identify the sunk cost is the sunk cost relevant to Castillo's decision? 3. Should Castillo sell the petroleum distillate or process it into cleaner fluid? Show the expected not revenue difference between the two alternatives Print Done Enter any number in the edit fields and ? ead the res Help Me Solve This equiremel Question Help Castillo Petroleum has spent $202,000 to refine 64,000 gallons of petroleum distillate, which can be sold for $6.40 per gallon. Alternatively, Castillo can process the distillate further and produce 57,000 gallons of cleaner fluid. The additional processing will cost $1.75 per gallon of distillate. The cleaner fluid can be sold for $9.00 per gallon. To sell cleaner fluid, Castillo must pay a sales commission of $0.10 per gallon and a transportation charge of $0.15 per gallon. Read the requirements Jol of S At what point in processing should a company sell its product? Many companies face this business decision. Some questions managers consider when deciding whether to sell as is or process further include: How much revenue will the company receive if we sell the product as is? How much revenue will the company receive if the company sells the product after processing it further? How much will it cost to process the product further? Managers can then accumulate this data in a differential analysis to determine which alternative appears to provide the company with the most benefit. The differential analysis calculates the benefit each alternative gives to the company. The benefit" is the sales revenue less any additional costs to process the product further. The alternative with the highest benefit will also be the one that is the most profitable for the company Requirement 1. Fill in the diagram for Seminole's alternatives. Before we begin the diagram we will first calculate sales revenue under each alternative and the additional processing, selling (commissions) and transportation costs under the process furtiler" altemative. Begin by referring to the information provided and calculating the sales revenue under each alternative. Gallons to sell Selling price Sales revenue Premium distillate 64,000 6.20 396,800 Thin nunti The additional costs of selling the cleaner fluid will include the cost per gallon of distillate for additional processing in addition to the commission and transportation charges for the gallons of cleaner fluid. Complete the table below to compute the total additional costs of processing and selling the cleaner fluid Gallons 64,000 * Additional costs - 1.85 = $ Distillate Cleaner fluid-sales commissions and transportation costs Total cost 118.400 14,840 133,240 53,000 0.28 Total Now complete the diagram for Seminole's alternatives. The sales revenue and additional cost amounts that you computed in the previous steps have been entered into the diagram for you. Complete the diagram for Seminole's alternatives by referring to the information provided and entering in the joint costs of producing the 64,000 of petroleum (which is the same amount whether the company sells gallons of distillate or gallons of cleaner fluid.) De Revenues from seling as is 396,800 Joint costs of producing 64,000 gallons of petroleum distilato (200,000) Cost of $ processing further (133,240) I Ravenues from processing further 477,000 g Requirement 2. Identify the sunk cost. Is the sunk cost relevant to Seminole's decision? Asunk cost is a past cost that cannot be changed regardless of which future action the company takes. Based on the information provided, which costs will the company incur regardless of whether the petroleum is sold as distilate or processed further into cleaner fluid? Requirement 3. Should Seminole sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives. Remember, to determine whether to sell a product as is or to process it further, we want to compare the net benefits (the net revenues) that result from the two alternatives. We have already computed the revenues that will result from selling the petroleum distillate as is and the revenues and additional costs that will result from processing and selling the petroleum as cleaner fluid. Those amounts have been entered into the analysis for you. Complete the analysis by calculating the expected net revenue amount (the net benefit) from each of the two alternatives and then computing the differences in the expected revenues, the additional costs, and the net revenues between the process further" and "sell as is" alternatives. (Enter decreases to profits with a parentheses or minus sign. For the difference in total net revenue, use a parentheses or a minus sign if processing further will decrease total net revenue.) Sell AS IS $ S Expected revenue from seling 64,000 gallons of petroleum distilate 396 800 Expected revenue from selling 53,000 gallons of cleaner fluid Additional costs of processing Total net revenue 396,800 $ Carefully review the decision rule for determining whether to sell as-is or process further DECISION RULE: Sell as-is or process further? 477,000 $ 80.200 (133,240) (133,240) 343,760 S (53,040) If additional revenue from processing further excepds the additional cost of processing further If additional revenue from processing further is less than the additional cost of processing further Process further Sell as is, do not process further

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