Question - Sell or process further decision
DeBaca's Fish House buys fish from local fishermen and sells the fish to the public from its booth at the public market. Lately, the fish house has had a number of requests for smoked salmon and has decided to investigate whether that would be a profitable item. The salmon DeBaca's buys now costs the company $6 per kg. DeBaca's would have to take the new salmon to a smokehouse to have it smoked, which would increase the total cost to $9.75 for each kg of salmon. The salmon currently sells for $16.50 per kg but would sell for $19.50 per kg if it were smoked.
Required
a. Based on the facts given, would it be profitable to smoke the salmon? Why or why not?
b. If the cost of the smoking process could be reduced by $1.50 per kg, would it be profitable to smoke the salmon?
c. What qualitative factors should be considered before making a final decision?