Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Chapter 17, Problem 29P
Pharmaco Corporation buys three chemicals that are processed to produce two popular ingredients for liquid pain relievers. The three chemicals are in liquid form. The purchased chemicals are blended for two to three hours and then heated for 15 minutes. The results of the process are two separate ingredients, PR1 and PR2. For every 4,300 gallons of chemicals used, 2,000 gallons of each pain reliever are produced. The pain relievers are sold to companies that process them into their final form. The selling prices are $34 per gallon for PR1 and $45 per gallon for PR2. The costs to produce one batch (containing 2,000 gallons of each chemical) are as follows:
The pain relievers are bottled in five-gallon plastic containers and shipped. The cost of each container is $2.10. The costs of shipping are $0.50 per container.
Pharmaco Corporation could process PR1 further by mixing it with inert powders and flavoring to form tablets. The tablets can be sold directly to retail drug stores as a generic brand. If this route is taken, the revenue received per case of tablets would be $13.50, with eight cases produced by every gallon of PR 1. The costs of processing into tablets total $11.00 per gallon of PR1. Packaging costs $5.16 per case. Shipping costs are $1.68 per case.
Required:
- 1. Should Pharmaco sell PR1 at split-off, or should PR1 be processed and sold as tablets?
- 2. If Pharmaco normally sells 26,000 gallons of PR1 per year, what will be the difference in profits if PR1 is processed further?
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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…
Zanda Drug Corporation buys three chemicals that are processed to produce two types ofanalgesics used as ingredients for popular over-the-counter drugs. The purchased chemicalsare blended for 2 to 3 hours and then heated for 15 minutes. The results of the process aretwo separate analgesics, depryl and pencol, which are sent to a drying room until their moisture content is reduced to 6 to 8%. For every 1,300 pounds of chemicals used, 600 pounds ofdepryl and 600 pounds of pencol are produced. After drying, depryl and pencol are sold tocompanies that process them into their final form. The selling prices are $12 per pound fordepryl and $30 per pound for pencol. The costs to produce 600 pounds of each analgesic areas follows:Chemicals $8,500Direct labor 6,735Overhead 9,900The analgesics are packaged in 20-pound bags and shipped. The cost of each bag is $1.30.Shipping costs $0.10 per pound.Zanda could process depryl further by grinding it into a fine powder and then molding thepowder into…
Autry Company manufactures veterinary products. One joint process involves refining a chemical (dactylyte) into two chemicals: dac and tyl. One batch of 5,000 gallons of dactylyte can be converted to 2,000 gallonsof dac and 3,000 gallons of tyl at a total joint processing cost of $12,000. At the split-off point, dac can be sold for $3 per gallon and tyl can be sold for $4 per gallon.Autry has just learned about a new process to convert dac into prodac. The new process costs $4,000 and yields 1,700 gallons of prodac for every 2,000 gallons of dac. Prodac sells for $5 per gallon.
Should Autry process dac further?
a.
No, income will decrease by $1,500.
b.
No, income will decrease by $5,000.
c.
Yes, income will increase by $1,500.
d.
Yes, income will increase by $5,000.
e.
It doesn't matter; income will be the same.
Chapter 17 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 17 - What is tactical decision making?Ch. 17 - Tactical decisions are often small-scale decisions...Ch. 17 - What is tactical cost analysis? What steps in the...Ch. 17 - What is a relevant cost? Explain why depreciation...Ch. 17 - Give an example of a future cost that is not...Ch. 17 - Prob. 7DQCh. 17 - Can direct materials ever be irrelevant in a...Ch. 17 - What role do past costs play in tactical cost...Ch. 17 - When will flexible resources be relevant to a...Ch. 17 - Prob. 11DQ
Ch. 17 - Prob. 12DQCh. 17 - Prob. 13DQCh. 17 - Prob. 14DQCh. 17 - Why would a firm ever offer a price on a product...Ch. 17 - Each year, Basu Company produces 18,000 units of a...Ch. 17 - Reshier Company makes three types of rug...Ch. 17 - Sequoia Paper Products, Inc., manufactures boxed...Ch. 17 - Betram Chemicals Company processes a number of...Ch. 17 - Prob. 5ECh. 17 - Elliott, Inc., has four salaried clerks to process...Ch. 17 - Prob. 7ECh. 17 - Feinan Sports, Inc., manufactures sporting...Ch. 17 - Wehner Company is currently manufacturing Part...Ch. 17 - Brees, Inc., a manufacturer of golf carts, has...Ch. 17 - Prob. 11ECh. 17 - Nutterco, Inc., produces two types of nut butter:...Ch. 17 - Carleigh, Inc., is a pork processor. Its plants,...Ch. 17 - Global Reach, Inc., is considering opening a new...Ch. 17 - Tony and Tina Roselli own and run TNTs Pizza...Ch. 17 - Jason Rogers works full-time for UPS and runs a...Ch. 17 - Prob. 17ECh. 17 - A company is considering a special order for 1,000...Ch. 17 - Walloon Company produced 150 defective units last...Ch. 17 - Pasha Company produced 50 defective units last...Ch. 17 - Future costs that differ across alternatives are:...Ch. 17 - Thaler Company bought 26,000 of raw materials a...Ch. 17 - Norton Products, Inc., manufactures...Ch. 17 - Prob. 24PCh. 17 - Fiorello Company manufactures two types of...Ch. 17 - St. Johns Medical Center (SJMC) has five medical...Ch. 17 - Brandy Dees recently bought Nievo Enterprises, a...Ch. 17 - Apollonia Dental Services is part of an HMO that...Ch. 17 - Pharmaco Corporation buys three chemicals that are...Ch. 17 - KarlAuto Corporation manufactures automobiles,...Ch. 17 - Morrill Company produces two different types of...Ch. 17 - Paladin Company manufactures plain-paper fax...
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