Problem:
ConAgra, Inc., produces meat products with brand names such as Healthy Choice, Armour, and Butterball. Suppose one of the company's plants processes beef cattle into various products. For simplicity, assume that there are only three products: steak, hamburger, and hides, and that the average steer costs $700. The three products emerge from a process that costs $100 per steer to run, and output from one steer can be sold for the following net amounts.
Steak(100 pounds) $400, Hamburger(500 pounds) $600, Hide(120 pounds)$100, total$1,100.
Asssume that each of these three products can be sold immediately or processed further in another ConAgra plant. The steak can be the main course in frozen dinners sold under the Healthy Choice label. The vegetables and desserts in the 400 dinners produced from the 100 pounds of steak would cost $120, and production, sales, and other costs for the 400 meals would total $350. Each meal would be sold wholesale for $2.15.
The hamburger cojuld be made into frozen Salisbury steake patties sold under the Armour label. The only additional cost would be a $200 processing cost for the 500 pounds of hamurger. Frozen Salisbury steaks sell wholesale for $1.70 per pound.
The hide can be sold before or agter tanning. The cost of tanning oned hide is $80, and a tanned hide can be sold for $175.
1. Compute the total profit if all three products are sold at the split-off point.
2. Compute the total profit if all three products are processed further before being sold.
3. Which products should be sold at the split-off point? which should be processed further?
4. Compute the total profit if your plan in number 3 is followed.