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 $77,000, and the result is 5,900 gallons of anderine and 7,600 gallons of dofinol. Betram Chemicals can sell the anderine at split-off for $12.00 per gallon and the dofinol for $6.85 per gallon. Alternatively, the anderine can be processed further at a cost of $7.30 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? Do NOT round interim calculations and, if required, round your answer to the nearest cent.

Process it further by $

2. What if the production of anderine into cermine required additional purchasing and quality inspection activity? Every 560 gallons of anderine that undergo further processing require 18 more purchase orders at $8 each and 18 more quality inspection hours at $27 each. Which alternative would be better and by how much? Do NOT round interim calculations and, if required, round your answer to the nearest cent.

Sell at split-off by $