Exercise - Sell or process further

Spokane Coffee Company produces Columbian coffee in batches of 5,000 pounds. The standard quantity of materials required in the process is 5,000 pounds, which cost $4.00 per pound. Columbian coffee can be sold without further processing for $9.00 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $12.50 per pound. The processing into Decaf Columbian requires additional processing costs of $14,110 per batch. The additional processing will also cause an 8% loss of product due to evaporation.

a) Prepare a differential analysis report dated April 30, 2013, for the decision to sell or process further.

b) Should Spokane Coffee 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.