Problem solution

Sell or process further

ADP Mining co mines and iron ore called Alpha. During the month of August 350,000 tons of Alpha were mined and processed at a cost of 675,000. As the Aplha ore is mined it is processed into Delta and Pi where 60 % of the Alpha output becomes Delta and 40 percent becomes Pi each product can be sold as is or processed into the refined products Super Delta and Precision Pi. Selling prices for these products are as follows

Selling Price

Delta 6$/ton

Super Delta $12/tom

Pi $15/ton

Precision Pi $25/ton

Processing costs to refine Delta into Super Delta are 1, 680.000 processing to refine into Precision PI are 1120,000

a. Should Delta and Pi be sold as is or refund into Super Delta or Precision PI

b. Identify any costs in the problem that are not relevant to this decision

c. What is the maximum profit that ADP Mining can expect to earn form the production of the 350,000 tons of Alpha