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CASE SELL OR PROCESS FURTHER DECISION

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by

YiTung Wen

on 28 October 2014

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Transcript of CASE SELL OR PROCESS FURTHER DECISION

Midwest Mills has a plant that can mill wheat grain into a cracked wheat cereal and then further mill the cracked wheat into flour. In the past, the company has sold only part of its cracked wheat as cereal and has retained the rest for further milling into flour.
The flour has been selling for $700 per ton
, but recently the price has become unstable and has
dropped to $625 per ton
. The costs and revenues associated with a ton of flour follow:
The company can sell all the
cracked wheat
cereal that it can produce at a
selling price of $490 per ton
.
The same milling equipment is used for both products. Milling one ton of cracked wheat into one ton of flour requires the same capacity as milling one ton of wheat grain into one ton of cracked wheat. Hence,
the choice is between one ton of flour and two tons of cracked wheat
. Current cost and revenue data on the cracked wheat cereal follow:
THANKS FOR YOUR LISTENING
Instructor :Ms. Shu
Member :10231006 Yi Sum
10231014 Ching Liu
10231028 Tung Wen
GROUP 1
What should the company produce ?
The company assigns
manufacturing overhead cost
to the two products on the
basis of milling hours
. The
same amount of time
is
required to mill either a ton of cracked wheat or a ton of flour
. Virtually all manufacturing overhead costs are fixed. Materials and labor costs are variable.
1.Do you agree with the sales manager that the company should discontinue milling flour and use the entire milling capacity to mill cracked wheat if the price of flour remains at $625 per ton?
Ans:
Agree.
Because the company producing cracked wheat can make more profits rather than producing the flour in the same time.
2.What is the lowest price that the company should accept for a ton of flour? Again support your answer with computations and explanations.
REQUIRE
ANS:
Q&A
Full transcript