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Decision making

ZzorrizSupporter8y ago
Good Day Tutor,I have a question about the further processing decison,which the question is described below Q: “The company can sell P1 for $20 per litres at the end of process G.It is considering a proposal to further process product P1 of 1,000 litres in Process H in order to create product PP1 . Process H has sufficient spare capacity to do this work. The further processing in process H would cost 44 per litre input from process G.In process H there would be a normal loss in volume of 10% of the input to that process.This loss has no realisable value.Product PP1 could then be sold for $26 per litre.” And my question is 1. If there was a normal loss, the incremental cost should count for 1000litres or 900litres?which mean $4 x 1000litres or $4 x 1000litres x90%? 2. And how about the question is changed to abnormal loss hence what is the treatment for it,is it the same or different? Hope Tutor can help me to clarify this question, I’ll appreciate it as I really want to know the answer for learning purpose.
John MoffatJohn MoffatTutor8y ago#1
The extra cost is 1000 x $4 whether the loss is normal or abnormal, because the question says that the cost is $4 per litre input from process G, and the loss only occurs in process H. (You typed $44 in the question - I assume you meant $4 :-) )
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