Reference no: EM133169428

Question - Smith Foods Inc. produces meat products with brand names such as Premium, Swift, and Butterball. One of its plants processes beef cattle into various products. For simplicity, assume there are only three products; steak, hamburger, and hides and that the average cost of a steer is $700. The three products emerge from a process that costs $100 per cow to run, and output can be sold for the following net amounts:

Steak (100 kilograms) $400

Hamburger (500 kilograms) 600

Hides (120 kilograms) 100

Total $1,100

Assume that each of these three products can be sold immediately or processed further in another Smith Foods plant. The steak can be the main course in frozen dinners sold under the Quick Dinners label. The vegetables and desserts in the 400 dinners produced from the 100 kilograms 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 could be made into Salisbury Steak parties sold under the Swift label. The only additional cost would be $200 processing cost for the 500 kilograms of hamburger. Frozen Salisbury Steaks sell wholesale for $1.70 per kilogram.

The hides can be sold before or after tanning. The cost of tanning one hide is $80, and a tanned hide can be sold for $175.

Required -

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 requirement 3 is followed.