Rouse Chemical has spent $244,000 to refine 74,000 gallons of acetone, which can be sold for $1.90 a gallon. Alternatively, Rouse Chemical can process the acetone further. This processing will yield a total of 59,000 gallons of lacquer thinner that can be sold for $3.00 a gallon. The additional processing will cost $0.80 per gallon of lacquer thinner. To sell the lacquer thinner, Rouse Chemical must pay shipping of $0.24 a gallon and administrative expenses of $0.14 a gallon on the thinner. Read the requirements.
Rouse Chemical has spent $244,000 to refine 74,000 gallons of acetone, which can be sold for $1.90 a gallon. Alternatively, Rouse Chemical can process the acetone further. This processing will yield a total of 59,000 gallons of lacquer thinner that can be sold for $3.00 a gallon. The additional processing will cost $0.80 per gallon of lacquer thinner. To sell the lacquer thinner, Rouse Chemical must pay shipping of $0.24 a gallon and administrative expenses of $0.14 a gallon on the thinner. Read the requirements.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Rouse Chemical has spent $244,000 to refine 74,000 gallons of acetone, which can be sold for $1.90 a gallon. Alternatively, Rouse Chemical can process the acetone further. This processing will
yield a total of 59,000 gallons of lacquer thinner that can be sold for $3.00 a gallon. The additional processing will cost $0.80 per gallon of lacquer thinner. To sell the lacquer thinner, Rouse Chemical
must pay shipping of $0.24 a gallon and administrative expenses of $0.14 a gallon on the thinner.
Read the requirements.
Requirement 1. Identify the sunk cost. Is the sunk cost relevant to Rouse's decision? Why or why not?
The amount spent to refine the acetone is a sunk cost that
further. Consequently, this sunk cost of $ 244,000 is
does not
irrelevant
differ between alternatives of selling as is or processing
to the sell or process further decisión.
Requirement 2. Should Rouse sell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. (Enter a "0" for any zero amounts.
Use a minus sign or parentheses in the Difference column if the Sell As Is amount exceeds the Process Further amount.)
Less:
Net benefit to operating income per batch
Sell
As is
Process
Further
Difference
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