Reference no: EM132741568
Wool Incorporated
Wool Incorporated manufactures clothing from wool. Planning for next year, Wool Inc. has consulted you to provide your recommendation on various business decisions. Use your knowledge of relevant costs for decision making to provide a recommendation for each of the 4 business decisions.
Wool Inc. also sells wool so that crafters can use their signature wool to create their own products at home. Wool Inc. produces three joint products from raw wool. At the split-off point, three basic products emerge: red wool, blue wool, and yellow wool. Each of these products can be either sold at the split-off point or processed further. If they are processed further, the resulting products can be sold to high-end crafters as a premium product. Cost and revenue information is as follows.
Sales Value and Additional
Costs If Processed Further
Pounds Sales Value at Final Sales Additional Further
Produced Split-Off Value Processing Cost
Red Wool 10,000 $110,000 $200,000 $50,000
Blue Wool 5,000 100,000 180,000 60,000
Yellow Wool 3,000 90,000 110,000 21,000
Required:
Problem a. Which products should Wool Inc. process beyond the split-off point?
Problem b. At what price per pound would it be advantageous for Wool Inc. to sell blue wool at the split-off point rather than process it further?
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