Requirement - 1: Financial advantage (disadvantage): Financial advantage (disadvantage) is the base before deciding to start a business activity. So we can say when per unit or per pound profit is positive then it will be said financial advantageous or vice versa. To identify: Financial advantage (disadvantage) of further processing one T-bone steak. Solution: Further processing will result into financial advantage because there will be per pound profit of $.40 from further processing. This per pound profit profit is calculated as follow; Sales from further processing; Sales price of one filet mignon $4.5 Sales price of one New York cut $4.4 Total revenue from further processing $8.9 Less: Sales revenue from one T-bone steak ($7.95) Incremental revenue from further processing $0.95 Less: Cost of further processing ($0.55) Profit per pound from further processing $.40 Explanation: Given: Following information are given in the question: Filet mignon = 6 New York cut = 8 Selling price filet mignon = $12 per pound Selling price New York cut = $8.80 per pound Cost of further processing = $0.55 per Formula used: Following formula will be used; Sale price of one filet mignon = (Total ounces &#x00A0;Rate per pound) / 16 Ounces Sale price of one New York cut = (Total ounces &#x00A0;Rate per pound) / 16 Ounces Calculation: Selling price of one filet mignon = (6 * $12) / 16 = $4.50 Selling price of one New York cut = (8 * $8.8) / 16 = $4.40 Conclusion: So above calculation shows financial advantage for the further processing. Requirement - 2: To Explain: The T-bone steaks be sold as initially cut or processed further? Solution: The T-bone steaks should be processed further into the filet mignon and the New York cut because this further process will generate a positive per pound profit of $0.40. So overall profitability of this firm will be higher. Although we know that if T-bone steaks is sold as initially then there will be profit of $0.45 per pound. But we have calculated incremental revenue in case of further processing that is why this $0.45 per pound profit is not relevant in such decision making. So as a result we can say that the T-bone steaks should be processed further into the filet mignon and the New York cut. Conclusion: Thus overall we can say that T-bone steaks should be processed further into the filet mignon and the New York cut.

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Chapter 13 Solutions