Question
Turley, Inc., is a pork processor. Its plants, located in the West Coast, produces several products from a common process: sirloin roasts, pork chops, spareribs,
Turley, Inc., is a pork processor. Its plants, located in the West Coast, produces several products from a common process: sirloin roasts, pork chops, spareribs, and the residual. The roasts, pork chops, and spareribs are packaged, branded, and sold to supermarkets. The residual consists of organ meats and leftover pieces that are sold to sausage and hot dog processors. The joint costs for a typical week are as follows:
Direct materials | $93,500 |
Direct labor | 30,600 |
Overhead | 22,500 |
The revenues from each product are as follows: sirloin roasts, $76,500; pork chops, $65,000; spareribs, $35,000; and residual, $8,000.
Turleys management has learned that certain organ meats are a prized delicacy in Japan. They are considering separating those from the residual and selling them abroad for $56,600. This would bring the value of the residual down to $3,200. In addition, the organ meats would need to be packaged and then air freighted to Japan. Further processing cost per week is estimated to be $31,300 (the cost of renting additional packaging equipment, purchasing materials, and hiring additional direct labor). Transportation cost would be $11,300 per week. Finally, resource spending would need to be expanded for other activities as well (purchasing, receiving, and internal shipping). The increase in resource spending for these activities is estimated to be $3,400 per week.
1. What is the gross profit earned by the original mix of products for one week?
What is the effect of the decision on weekly gross profit?
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