Question Three: (16 marks) (B1, C2)

Part A: (8 marks)

Ahmad Beef Products, Inc., process cattle. It can sell meat as sides of beef or process it further into final cuts (steaks, roasts, and hamburger). As part of the companys strategic plan, management is looking for new markets for meat or meat by-products. The production process currently separates hides and bones for sale to other manufacturers. However, management is considering whether it would be profitable to process the hides into leather and the bones into fertilizer. The costs of the cattle and of transporting, hanging, storing, and cutting sides of beef are $125,000. The companys accountant provided these data:

Product	Sales Revenue if Sold at Split-Off	Sales Revenue if Sold After Further Processing	Additional Processing Costs
Meat	$100,000	$200,000	$80,000
Bones	20,000	40,000	15,000
Hides	50,000	55,000	10,000

Instructions: Should the products be processed further? Explain your answer. (show your calculation)

Part B: (8 marks)

Zaman Co. is now producing Product X. The companys accounting department reports the following costs of producing 50,000 units of the product X each year:

Direct Materials $2

Direct Labor $1

Variable Overhead $1

Fixed cost $ 1.75* (Expected 50% will save if the company will buy from the outside supplier)

An outside supplier from China offered to sell 50,000 units to Zaman Co. at a price of only $5 each.

Instructions:

Should the company stop producing the product X internally or buy them from the outside supplier? (show your calculation)