Sell at Split-Off or Process Further Decision, Alternatives, Relevant Costs

Betram Chemicals Company processes a number of chemical compounds used in producing industrial cleaning products. One compound is decomposed into two chemicals: anderine and dofinol. The cost of processing one batch of compound is $80,000, and the result is 5,700 gallons of anderine and 7,800 gallons of dofinol. Betram Chemicals can sell the anderine at split-off for $11.00 per gallon and the dofinol for $6.00 per gallon. Alternatively, the anderine can be processed further at a cost of $8.10 per gallon (of anderine) into cermine. It takes 3 gallons of anderine for every gallon of cermine. A gallon of cermine sells for $64.

Required:

1. Which alternative is more cost effective and by how much? NOTE: Do NOT round interim calculations and, if required, round your answer to the nearest dollar.

Sell at split-offProcess it further

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2. What if the production of anderine into cermine required additional purchasing and quality inspection activity? Every 570 gallons of anderine that undergo further processing require 23 more purchase orders at $12 each and 16 more quality inspection hours at $27 each. Which alternative would be better and by how much? NOTE: Round interim calculations and your final answer to the nearest cent.

Sell at split-offProcess it further

by $fill in the blank 4