Sell or Process-Further Decision
E 13. H & L Beef Products, Inc., processes cattle. It can sell the meat as sides of beef or process it further into final cuts (steaks, roasts, and hamburger). As part of the company’s strategic plan, management is looking for new markets for meat or meat by-products. The production process currently separates hides and bones for sale to other manufacturers. However, management is considering whether it would be profitable to process the hides into leather and the bones into fertilizer. The costs of the cattle and of transporting, hanging, storing, and cutting sides of beef are $125,000. The company’s accountant provided these data:
|
Product |
Sales Revenue if Sold at Split-Off |
Sales Revenue if Sold After Further Processing |
Additional Processing Costs |
|
Meat |
$100,000 |
$200,000 |
$80,000 |
|
Bones |
20,000 |
40,000 |
15,000 |
|
Hides |
50,000 |
55,000 |
10,000 |
Should the products be processed further? Explain your answer.