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Lone Star Meat Packers is a major processor of beef and other meat products.
Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steakon hand, and it is trying to decide whether to sell the T-bone steaks as they are initially cut or to process them further into fillet Mignon and the New York cut.If the T-bone steaks are sold as initially cut, the company figures that a 1-pound T-bone steak would yield the following profit:Selling price ($2.25 per pound) . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.25Less joint costs incurred up to the split-off point whereT-bone steak can be identified as a separate product . . . . . . . . 1.80Profit per pound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.45As mentioned above, instead of being sold as initially cut, the T-bone steaks could be furtherprocessed into fillet Mignon and New York cut steaks. Cutting one side of a T-bone steak providesthe fillet Mignon, and cutting the other side provides the New York cut. One 16-ounce T-bonesteak cut in this way will yield one 6-ounce fillet Mignon and one 8-ounce New York cut; theremaining ounces are waste. The cost of processing the T-bone steaks into these cuts is $0.25 perpound. The fillet Mignon can be sold for $4.00 per pound, and the New York cut can be sold for$2.80 per pound.Required:1. Determine the profit per pound from processing the T-bone steaks into fillet Mignon and NewYork cut steaks.2. Would you recommend that the T-bone steaks be sold as initially cut or processed further?Why?
