Stenback

Chemical has spent

$242,000

to refine

73,000

gallons of acetone, which can be sold for

$2.30

a gallon. Alternatively,

Stenback

Chemical can process the acetone further. This processing will yield a total of

63,000

gallons of lacquer thinner that can be sold for

$3.00

a gallon. The additional processing will cost

$0.65

per gallon of lacquer thinner. To sell the lacquer thinner,

Stenback

Chemical must pay shipping of

$0.24

a gallon and administrative expenses of

$0.12

a gallon on the thinner.

Requirements

1.	Identify the sunk cost. Is the sunk cost relevant to Stenback's decision? Why or why not?
2.	Should StenbackStenback sell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives.

Requirement 1. Identify the sunk cost. Is the sunk cost relevant to

StenbackStenback's

decision? Why or why not?

The

is a sunk cost that

differ between alternatives of selling as is or processing

further. Consequently, this sunk cost of $

is

to the sell or process further decision.