(prepared from a situation suggested by professor john w. hardy.) lone star meat packers is a major processor of beef and other meat products. the company has a large amount of t-bone steak on 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 filet 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 ($2.40 per pound) $ 2.40 less joint costs incurred up to the split-off point where t-bone steak can be identified as a separate product 1.35 profit per pound $ 1.05 if the company were to further process the t-bone steaks, then cutting one side of a t-bone steak provides the filet mignon and cutting the other side provides the new york cut. one 16-ounce t-bone steak cut in this way will yield one 6-ounce filet mignon and one 8-ounce new york cut; the remaining ounces are waste. it costs $0.20 to further process one t-bone steak into the filet mignon and new york cuts. the filet mignon can be sold for $3.60 per pound, and the new york cut can be sold for $3.60 per pound.

It is more convenient to continue the process.

Explanation:

Giving the following information:

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 ($2.40 per pound) $ 2.40

Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product 1.35

Profit per pound $ 1.05.

A T-bone steak provides the filet mignon and cutting the other side provides the New York cut. One 16-ounce T-bone steak cut in this way will yield one 6-ounce filet mignon and one 8-ounce New York cut; the remaining ounces are waste. It costs $0.20 to further process one T-bone steak into the filet mignon and New York cuts. The filet mignon can be sold for $3.60 per pound, and the New York cut can be sold for $3.60 per pound.

Total ounces= 14

Filet= 6/14= 0.43

Ney York= 0.57

Filet mignon:

6 ounces= 0.375 pounds

Selling price= 3.6*0.375= 1.35

Further process= 0.20*0.43= 0.086

Selling price= 1.35

Joint costs= 1.35*0.43= 0.58

Further process= 0.086

Gross profit= 0.68

New York:

8 ounce= 0.5 pounds

Selling price= 3.60*0.5=1.8

Further process= 0.20*0.57= 0.114

Selling price= 1.8

Joint costs= 1.35*0.57= 0.77

Further process= 0.114

Gross profit= 0.916

Profit:

T-bone= 1.05

Filet= 0.68

New York= 0.916

Total further process= 1.596

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