Reference no: EM13599092

Prevatte Corporation purchases potatoes from farmers. The potatoes are then peeled, producing two intermediate products - 'peels' and 'skinless spuds'. The 'peels' can then be processed further to make a cocktail of 'organic nutrients'. The 'skinless spuds' can be processed further to make 'frozen french fries'. A batch of potatoes costs $45 to buy from farmers and $12 to peel in the company's plant. The peeling costs of $12 are allocated equally to the 'peels' and the 'skinless spuds'. The 'peels' produced from a batch can be sold as is for $27 or processed further at a cost of $16 to make the 'organic cocktails' that are sold for $47. The 'skinless spuds' can be sold as is for $38 or processed further at a cost of $27 to make the 'frozen french fries' which can be sold for $59.

a. Should the 'peels' and 'skinless spuds', be sold as is or processed further into an end product? What is the economic advantage or disadvantage to selling at split off or further processing each item? Show your work!

Bonus: (2 points) Assuming that no other costs are involved in processing potatoes or in selling products, how much money does the company make from processing one batch of potatoes into the cocktail of organic nutrients and frozen french fries? Show your work!