Problem
Sell or Process Further
Zing Roast Coffee Company produces Columbian coffee in batches of 5,800 pounds. The standard quantity of materials required in the process is 5,800 pounds, which cost $4.00 per pound. Columbian coffee can be sold without further processing for $9.40 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $11.00 per pound. The processing into Decaf Columbian requires additional processing costs of $9,050 per batch. The additional processing will also cause a 5% loss of product due to evaporation.
a. Prepare a differential analysis dated August 28, 2014, on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2).
b. Should Zing Roast sell Columbian coffee or process further and sell Decaf Columbian?
c. Determine the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian.