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 $72,500, and the result is 5,600 gallons of anderine and 8,100 gallons of dofinol. Betram Chemicals can sell the anderine at split-off for $12.00 per gallon and the dofinol for $6.35 per gallon. Alternatively, the anderine can be processed further at a cost of $8.20 per gallon (of anderine) into cermine. It takes 4 gallons of anderine for every gallon of cermine. A gallon of cermine sells for $58.

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.

2. What if the production of anderine into cermine required additional purchasing and quality inspection activity? Every 520 gallons of anderine that undergo further processing require 18 more purchase orders at $12 each and 17 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.