REQUIREMENTS

OPTIONS FOR REQUIREMENT 2

OPTIONS FOR REQUIREMENT 3

Reynold Chemical has spent $239,000 to refine 75,000 L of acetone, which can be sold for $2.80/L. Alternatively, Reynold Chemical can process the acetone further to yield a total of 61,000 L of lacquer thinner that can be sold for $3.40/L. The additional processing will cost $0.85/L of lacquer thinner. To sell the lacquer thinner, Reynold Chemical must pay shipping of $0.18/L and administrative expenses of $0.13/L on the thinner. Requirements 1. Fill in the diagram for Reynold's decision. 2 Identify the sunk cost. Is the sunk cost relevant to Reynold's decision? Why or why not? 3. Should Reynold sell the acetone process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. Requirement 1. Fill in the diagram for Reynold's decision. Sell As Is Acetone sales revenue $ Sunk cost of producing 75,000 L of acetone Process Cost of further processing Further Lacquer thinner sales revenue Requirement 2. Identify the sunk cost. Is the sunk cost relevant to Reynold's decision? Why or why not? The $ sa sunk cost that 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 Reynold sell the acetone or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. Calculate the expected net revenue difference between the two alternatives. (Leave any unused cells blank.) Reynold Chemical Sell As Is or Process Further Analysis Sell As Is Process Further Revenue from selling 75,000 L of acetone Revenue from selling 61,000 L of lacquer thinner Additional costs required to convert acetone to lacquer thinner Total net revenue Difference in net revenue Decision Requirement 2. Identify the sunk cost. Is the sunk cost relevant to Reynold's decision? Why or why not? The $ is a sunk cost that between the alternatives of selling as is or processing further. Consequently, this sunk cost is to the sell-or-process-further decision. Requirem Calculate cost of further processing spent to refine the acetone ne or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. between the two alternatives. (Leave any unused cells blank.) Requirement 2. Identify the sunk cost. Is the sunk cost relevant to Reynold's decision? Why or why not? The $ is a sunk cost that between the alternatives of selling as is or processing further. Consequently, this sunk cost is to the sell-or-process-further decision Show the expected net revenue difference between the two alternatives. Requirement 3. Should Reynold sell the acetone or proces differs Calculate the expected net revenue difference between the does not differ Reynold ! e any unused cells blank.) Requirement 2. Identify the sunk cost. Is the sunk cost relevant to Reynold's decision? Why or why not? The $ is a sunk cost that 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 Reynold sell the acetone or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. Calculate the expected net revenue difference between the two alternatives. (Leave any unused cells blank.) irrelevant relevant Reynold Chemical Requirement 3. Should Reynold sell the acetone or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. Calculate the expected net revenue difference between the two alternatives. (Leave any unused cells blank.) Reynold Chemical Sell As Is or Process Further Analysis Sell As Is Process Further Revenue from selling 75,000 L of acetone Revenue from selling 61,000 L of lacquer thinner Additional costs required to convert acetone to lacquer thinner Total net revenue Difference in net revenue Decision: Sell acetone as is. Process further into lacquer thinner