eBookSell or Process FurtherAbica Coffee Company produces Columbian coffee in batches of 6,000 pounds. The standard quantity of materials required in the process is 6,000 pounds, which cost $5.00 per pound. Columbian coffee can be sold without further processing for $8.40 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $10.00 per pound. The processing into Decaf Columbian requires additional processing costs of $10,250 per batch. The additional processing will also cause a 6% loss of product due to evaporation.a. Prepare a differential analysis report for the decision to sell or process further.Abica Coffee CompanyProcess Columbian Coffee FurtherDifferential Analysis ReportDifferential revenue from further processing per batch: $Revenue from sale of Decaf Columbian Revenue from sale of Columbian coffee $Differential revenueDifferential cost per batch: Additional cost of producing Decaf Columbian $Differential loss from further processing Decaf Columbian per batch Feedback a. Follow Exhibit 10 in the text. For both products, subtract the costs from the revenues. Determine the differential effect on the revenues, costs, and income (loss).b. Should Abica Coffee sell Columbian coffee or process further and sell Decaf Columbian? c. Determine the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian. Round your answer to the nearest cent.$fill in the blank ae143ffdffe6f86_2 per pound

Sell or Process further: the sell or process further is a marginal decision made by the company to know the possibilities and profitability of processing a product at split off or processing it further. This decision is made by comparing the Incremental revenue and Incremental cost of the product Accept or Reject criteria: If the product’s Incremental revenue is higher than the incremental cost of the product then process the product further. If the Incremental revenue is less than the Incremental cost of the product then the product must be sold at split off Incremental revenue: it is the additional revenue earned by the company if the product is processed further it is calculated using the formula Sales value per unit if process further – Sales value per unit at split off Incremental cost: It is the additional cost incurred if processed further Differential revenue from further processing per batch: Revenue from sale of Decaf Columbian 56,400 Revenue from sale of Columbian coffee 50,400 Differential revenue 6,000 Differential cost per batch: Additional cost of producing Decaf Columbian 10,250 Differential gain or (loss) from further processing Decaf Columbian per batch (4,250) b. The Abica Coffee should sell Columbian coffee because if the company process further and make Decaf Columbian it will make the company a loss of 4,250 c. selling price needed for the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian = 10.75 Differential revenue from further processing per batch: Revenue from sale of Decaf Columbian (selling price * units can be sold) = 10.00 * 5,640 = 56,400 Revenue from sale of Columbian coffee (selling price * units of Columbian coffee can be sold) = 8.40 * 6,000 = 50,400 Differential revenue (Revenue from sale of Decaf Columbian - Revenue from sale of Columbian coffee) = 56,400 – 50,400 = 6,000 Differential cost per batch: Additional cost of producing Decaf Columbian 10,250 Differential gain or (loss) from further processing Decaf Columbian per batch (Differential revenue - Additional cost of producing Decaf Columbian) = 6,000 – 10,250 = (4,250) units can be sold = Columbian coffee units – 6% loss = 6,000 – 6% = 5,640 pounds The Abica Coffee should sell Columbian coffee because if the company process further and make Decaf Columbian it will make the company a loss of 4,250 the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian Which means Additional cost of producing Decaf Columbian = Differential revenue So Additional cost of producing Decaf Columbian = Revenue from sale of Decaf Columbian - Revenue from sale of Columbian coffee 10,250 = Revenue from sale of Decaf Columbian – 50,400 10,250 = (selling price * units can be sold) – 50,400 10,250 + 50,400 = Selling price * 5,640 60,650 = Selling price * 5,640 60,650 / 5,640 = Selling price So selling price needed for the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian = 10.75

Answered: Prepare a differential analysis report…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Sell or Process Further

Abica Coffee Company produces Columbian coffee in batches of 6,000 pounds. The standard quantity of materials required in the process is 6,000 pounds, which cost $5.00 per pound. Columbian coffee can be sold without further processing for $8.40 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $10.00 per pound. The processing into Decaf Columbian requires additional processing costs of $10,250 per batch. The additional processing will also cause a 6% loss of product due to evaporation.

a. Prepare a differential analysis report for the decision to sell or process further.

Abica Coffee CompanyProcess Columbian Coffee FurtherDifferential Analysis Report

Differential revenue from further processing per batch:
	$Revenue from sale of Decaf Columbian
	Revenue from sale of Columbian coffee
		$Differential revenue
Differential cost per batch:
		Additional cost of producing Decaf Columbian
		$Differential loss from further processing Decaf Columbian per batch

Feedback

a. Follow Exhibit 10 in the text. For both products, subtract the costs from the revenues. Determine the differential effect on the revenues, costs, and income (loss).

b. Should Abica Coffee sell Columbian coffee or process further and sell Decaf Columbian?

c. Determine the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian. Round your answer to the nearest cent.
$fill in the blank ae143ffdffe6f86_2 per pound

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