Cornerstone Exercise 17.4 (Algorithmic) Sell at Split-Off or Process Further Decision, Alternatives, Relevant Costs

Betram Chemicals Company processes a number of chemical compounds used in producing industrial cleaning products. One compound is decomposed into two chemicals: anderine and dofinol. The cost of processing one batch of compound is $78,000, and the result is 6,000 gallons of anderine and 7,900 gallons of dofinol. Betram Chemicals can sell the anderine at split-off for $10.00 per gallon and the dofinol for $6.85 per gallon. Alternatively, the anderine can be processed further at a cost of $8.80 per gallon (of anderine) into cermine. It takes 2 gallons of anderine for every gallon of cermine. A gallon of cermine sells for $62.

Required:

1. Which alternative is more cost effective and by how much? Do NOT round interim calculations and, if required, round your answer to the nearest cent.

by $ Process it further by $73,200

2. What if the production of anderine into cermine required additional purchasing and quality inspection activity? Every 570 gallons of anderine that undergo further processing require 22 more purchase orders at $10 each and 13 more quality inspection hours at $25 each. Which alternative would be better and by how much? Do NOT round interim calculations and, if required, round your answer to the nearest cent.

by $Process it further by ? $_________ I can't figure #2 out