Exercise 6) Looney Drug Corporation buys three chemicals that are processed to produce two types of vitamins. The purchased chemicals are blended for three to four hours and then heated for 17 minutes. The results of the process are two separate vitamins, doofy and goofy, which are sent to a drying room until their moisture content is reduced to 10 to 15 percent. For every 1,800 pounds of chemicals used, 800 pounds of doofy and 900 pounds of goofy are produced. After drying, doofy and goofy are sold to companies that process them into their final form. The selling prices are $13 per pound for doofy and $18 per pound for goofy. The costs to produce a pound of doofy and goofy are as follows: Chemicals Direct Labor Overhead doofy, per pound $5.05 $3.99 $5.85 goofy, per pound $4.96 $3.75 $5.39 The vitamins are packaged in 25-pound bags and shipped out to the companies who purchased them. The cost of each bag is $1.95. Shipping costs $0.88 per pound. Looney has recently discovered that they have the capability to process the doofy vitamins further. The doofy vitamins could be grinded into a fine powder and then molded into a tablet. These tablets could be sold directly to retail stores as a generic brand of vitamin. If Looney decides to take this route, the revenue received would be $5.79 per bottle of tablets. Every pound of doofy would produce 7 bottles of tablets. The costs of grinding and molding into tablets would be $3.05 per pound of doofy. The bottles used to package the generic vitamins would cost $0.52 each. These bottles would then be shipped in boxes that hold 40 bottles. The cost to ship would be $8.25 per box. Required: Should Looney sell doofy at split-off, or should doofy be processed and sold as tablets? If Looney normally sells 250,000 pounds of doofy per year, by how much will profits increase or decrease if doofy is processed further?

Exercise 6) Looney Drug Corporation buys three chemicals that are processed to produce two types of vitamins. The purchased chemicals are blended for three to four hours and then heated for 17 minutes. The results of the process are two separate vitamins, doofy and goofy, which are sent to a drying room until their moisture content is reduced to 10 to 15 percent. For every 1,800 pounds of chemicals used, 800 pounds of doofy and 900 pounds of goofy are produced. After drying, doofy and goofy are sold to companies that process them into their final form. The selling prices are $13 per pound for doofy and $18 per pound for goofy. The costs to produce a pound of doofy and goofy are as follows: Chemicals doofy, per pound goofy, per pound $5.05 $4.96 Direct Labor $3.99 $3.75 Overhead $5.85 $5.39 The vitamins are packaged in 25-pound bags and shipped out to the companies who purchased them. The cost of each bag is $1.95. Shipping costs $0.88 per pound. Looney has recently discovered that they have the capability to process the doofy vitamins further. The doofy vitamins could be grinded into a fine powder and then molded into a tablet. These tablets could be sold directly to retail stores as a generic brand of vitamin. If Looney decides to take this route, the revenue received would be $5.79 per bottle of tablets. Every pound of doofy would produce 7 bottles of tablets. The costs of grinding and molding into tablets would be $3.05 per pound of doofy. The bottles used to package the generic vitamins would cost $0.52 each. These bottles would then be shipped in boxes that hold 40 bottles. The cost to ship would be $8.25 per box. Required: Should Looney sell doofy at split-off, or should doofy be processed and sold as tablets? If Looney normally sells 250,000 pounds of doofy per year, by how much will profits increase or decrease if doofy is processed further?