Every day Mao-tai Manufacturing processes 1,000 kilograms of grapes into two products: 'cooking wine' and 'cocktail wine'.For every 1,000 kilograms of grapes processed the company incurs joint processing costs of $60,000.It allocates $35,000 of these costs to cooking wine and $25,000 to cocktail wine.(This allocation is made on the basis of the relative quantities produced of the two products.)Each batch of cooking wine can be sold for $80,000.Alternatively, it can be processed further to make 'cask wine' at an additional processing cost of $50,000, and then sold for $150,000.Each day's batch of cocktail wine can be sold for $90,000.Alternatively, it can be processed further to make 'red emperor wine', at an additional processing cost of $60,000, and then be sold for $130,000.

Requirements

(a)What products would you recommend that Mao-tai Manufacturing produce?

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(b)Assume now that the cooking wine can only be sold for $10,000 and cannot be processed further.What advice would you give to the company?

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