- Requirements 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. Print Done This Question: 12 pts 19 of 20 (0 complete) This Test: 75 pts possible 0 Preston Petroleum has spent $201,000 to refine 63,000 gallons of petroleum distillate, which can be sold for $6.00 per gallon. Alternatively, Preston can process the distillate further and produce 58,000 gallons of cleaner fluid. The additional processing will cost $1.85 per gallon of distillate. The cleaner fluid can be sold for $9.20 per gallon. To sell cleaner fluid, Preston must pay a sales commission of $0.12 per gallon and a transportation charge of $0.16 per gallon. Read the requirements Requirement 1. Fill in the diagram for Preston's alternatives. Revenues from selling as is Joint costs of producing 63,000 gallons of petroleum distillate Cost of Revenues from 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 V 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 63,000 gallons of petroleum distillate Expected revenue from selling 58,000 gallons of cleaner fluid Additional costs of processing Total net revenue Decision: Requirement 2. Identify the sunk cost. Is the sunk cost relevant to Preston's decision? The is a sunk cost that differ between this s sion. $132,790 cost of further processing Reqy (For process it into cleaner fluid? Showth a minus sign if processing further will $201.000 spent to refine the petroleum distillate Pro relevant to Preston's decision? sa sunk cost that differ between the alterna er decision does llate or process it is es or a minus sign Show the expected er will decrease to does not Additional costs of processing Total net revenue Decision: Process further into cleaner Sell as is