Cole Chemical has spent $$241,000$ to refine $73,000$ gallons of acetone, which can be sold for $$2\mathrm{.}00$ a gallon. Alternatively, Cole Chemical can process the acetone further. This processing will yield a total of $63,000$ gallons of lacquer thinner that can be sold for $$3\mathrm{.}30$ a gallon. The additional processing will cost $$0\mathrm{.}60$ per gallon of lacquer thinner. To sell the lacquer thinner, Cole Chemical must pay shipping of $$0\mathrm{.}22$ a gallon and administrative expenses of $$0\mathrm{.}13$ a gallon on the thinner.

Requirements

Identify the sunk cost. Is the sunk cost relevant to Cole's decision? Why or why not?

Should Cole sell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives.

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 is to the sell or process further decision.

Requirement $2.$ Should Cole sell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. $($Enter $a{0}^0"$ 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$)$

Sell

Process

As is

Further

Difference

Sales revenue

Less:

Additional processing costs to convert lacquer thinner

Net benefit to operating income per batch

Decision: