Chemical has spent

$244,000

to refine

79,000

L of acetone, which can be sold for

$2.40/L.

Alternatively,

Raleigh

Chemical can process the acetone further to yield a total of

58,000

L of lacquer thinner that can be sold for

$3.10/L.

The additional processing will cost

$0.40/L

of lacquer

thinner.

To sell the lacquer thinner,

Raleigh

Chemical must pay shipping of

$0.24/L

and administrative expenses of

$0.12/L

on the thinner.

Requirements

1.	Fill in the diagram for Raleigh's decision.
2.	Identify the sunk cost. Is the sunk cost relevant to Raleigh's decision? Why or why not?
3.	Should Raleigh sell the acetone or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives.