Preston Petroleum has spent $201,000 to refine 60,000 gallons of petroleum distillate, which can be sold for $6.20 per gallon. Alternatively, Preston can process the distillate further and produce 55,000 gallons of cleaner fluid. The additional processing will cost $1.70 per gallon of distillate. The cleaner fluid can be sold for $9.10 per gallon. To sell cleaner fluid, Preston must pay a sales commission of $0.11 per gallon and a transportation charge of $0.15 per gallon. Read the requirements FEED Requirement 1. Fill in the diagram for Preston's alternatives. - X Requirements Revenues from selling as is Joint costs of producing 60,000 1. Fill in the diagram for Preston's alternatives. 2. Identify the sunk cost. Is the sunk cost relevant to Preston's decision? 3. Should Preston sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives. gallons of petroleum distillate Cost of Revenues from Print Print Done processing processing further further Requirement 2. Identify the sunk cost. Is the sunk cost relevant to Preston's decision? The is a sunk cost that differ between the alternatives of selling as is or processing further. Consequently, this sunk cost is to the sell-or-process-further decision. -- Requirement 3. Should Preston sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives. (For the difference in total net revenue, use a parentheses or a minus sign if processing further will decrease total net revenue.) Process Sell As Is Further Difference Expected revenue from selling 60,000 gallons of petroleum distillate Expected revenue from selling 55,000 gallons of cleaner fluid Additional costs of processing Total net revenue Decision: Requirement 2. Identify the sunk cost. Is the sunk cost relevant to The is a sunk cos Requ "OC $116,300 cost of further processing Exp $201,000 spent to refine the petroleum distillate llat Exp Requirement 2. Identify the sunk cost. Is the sunk cost relevant to Preston's decision? The is a sunk cost that differ between the Requirement 3. Should Preston sell the petroleum distillate or process it is Proces ow the e does Furthe does not Expected revenue from selling 60,000 gallons of petroleum distillate Expected revenue from selling 55,000 gallons of cleaner fluid Requirement 2. Identify the sunk cost. Is the sunk cost relevant to Preston's decision? The 7 sa sunk cost that differ between the alternatives of selling as is or processing further. Consequently, this sunk cost is to the sell-or-process-further decision. Requirement 3. Should Preston sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives. (For the difference ir ie a parentheses or a minus sign if processing further will decrease total net revenue.) Process Further Sell As Is Difference irrelevant relevant Expected revenue from selling 60,000 gallons of petroleum distillate Expected revenue from selling 55,000 gallons of cleaner fluid Additional costs of processing Total net revenue Decision: Process further into cleaner e Text Sell as is
