Zanda Drug Corporation buys three chemicals that are processed to produce two types of analgesics used as ingredients for popular over-the-counter drugs. The purchased chemicals are blended for two to three hours and then heated for 15 minutes. The results of the process are two separate analgesics, depryl and pencol, which are sent to a drying room until their moisture content is reduced to 6 to 8 per cent. For every 1300 kilograms of chemicals used, 600 kilograms of depryl and 600 kilograms of pencol are produced. After drying, depryl and pencol are sold to companies that process them into their final form. The selling prices are $12 per kilogram for depryl and $30 per kilogram for pencol. The costs to produce 600 kilograms of each analgesic are as follows: Chemicals Direct labour Overhead The analgesics are packaged in 20-kilogram bags and shipped. The cost of each bag is $1.30. Shipping costs $0.10 per kilogram. $8 500 6 735 9 900 Zanda could process depryl further by grinding it into a fine powder and then moulding the powder into tablets. The tablets can be sold directly to retail pharmacies as a generic brand. If this route were taken, the revenue received per bottle of tablets would be $4.00, with 10 bottles produced from every kilogram of depryl. The costs of grinding and tableting total $2.50 per kilogram of depryl. Bottles cost $0.40 each. Bottles are shipped in boxes that hold 25 bottles at a shipping cost of $1.60 per box. Required: 1 2 Should Zanda sell depryl at split-off, or should depryl be processed and sold as tablets? If Zanda normally sells 265 000 kilograms of depryl per year, what will be the difference in profits if depryl is processed further?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Transcribed Image Text:Zanda Drug Corporation buys three chemicals that are processed to produce two types of analgesics used as ingredients for popular over-the-counter drugs. The purchased chemicals are blended for two to three hours and then heated for 15 minutes. The results of the process are two separate analgesics, depryl and pencol, which are sent to a drying room until their moisture content is reduced to 6 to 8 per cent. For every 1300 kilograms of chemicals used, 600 kilograms of depryl and 600 kilograms of pencol are produced. After drying. depryl and pencol are sold to companies that process them into their final form. The selling prices are $12 per kilogram for depryl and $30 per kilogram for pencol. The costs to produce 600 kilograms of each analgesic are as follows: Chemicals Direct labour Overhead The analgesics are packaged in 20-kilogram bags and shipped. The cost of each bag is $1.30. Shipping costs $0.10 per kilogram. $8 500 6 735 9 900 Zanda could process depryl further by grinding it into a fine powder and then moulding the powder into tablets. The tablets can be sold directly to retail pharmacies as a generic brand. If this route were taken, the revenue received per bottle of tablets would be $4.00, with 10 bottles produced from every kilogram of depryl. The costs of grinding and tableting total $2.50 per kilogram of depryl. Bottles cost $0.40 each. Bottles are shipped in boxes that hold 25 bottles at a shipping cost of $1.60 per box. Required: 1 2 Should Zanda sell depryl at split-off, or should depryl be processed and sold as tablets? If Zanda normally sells 265 000 kilograms of depryl per year, what will be the difference in profits if depryl is processed further? |

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