ChemCo, Inc. purchases the chemical googlite for $1,000/ton, and processes it at a cost of $2,400/ton in order to obtain 1,800 pounds of G1, which can be sold for $2.50/lb. As a necessary result of the process, 200 pounds of G2 are also produced. G2 can be sold for 75 cents/lb, or processed further into G3 at a cost of 40 cents/lb. G3 can be sold for $1.35/lb, while G2 can be sold for 75 cents/lb.

ChemCo believes they lose money on G3, and plan to quit processing and selling it. They compute their cost per pound as $2.10, while it sells for only $1.35. The $2.10 is derived as: (1,000 + 2,400)/2,000 = $1.70 + .40 further processing = $2.10. Advise ChemCo.