Many Canadian farmers are switching their crops from canola to hemp. A hemp plant generates almost twice the revenues per hectare for farmers, compared to canola. Consumers are attracted to this crop because of its health benefits as a great source of protein and unsaturated fat. Hearty Hemp Hearts Company hopes to profit from this growing trend. Hearty Hemp Hearts manufactures two products, using a joint production process. The company buys certified organic hemp seeds from farmers, which it then cracks and processes into hemp hearts and hemp hulls. The joint process costs $75,000 and yields 12,000 kilograms of hulls and 38,000 kilograms of hearts. The hemp hulls can be sold at split-off for $0.75 per kilogram. Hearts can be sold at split-off for $2.95 per kilogram. A buyer of the hearts has asked Hearty Hemp Hearts to process the hearts further into hemp flour for use in specialty organic breads. However, hemp hearts do not mill into flour only; they will become like butter because of the high oil content. To obtain flour, the hearts must first be pressed and the oils removed. Therefore, if hemp hearts were processed further, it would cost an additional $28,500 to turn 38,000 kilograms of hemp hearts into 27,000 kilograms of certified organic hemp flour. The hemp flour would sell for $4.65 per kilogram. Also produced from the additional processing would be 6,000 litres of hemp oil. Hemp oil is new to Hearty Hemp Hearts, and they are not currently aware of any buyers for this product.

Required:

(A) Is it profitable for the company to process and sell hemp hulls and hearts?

(B) What is the impact of processing hearts further (into flour) for the customer?

(C) What price would be required for the oil in order for this customer request to break even?

(D) Does cost-based pricing for hemp oil make sense for Hearty Hemp Hearts? How would you go about setting a price for this product?