Sell or Process Further Zanda Drug Corporation buys three chemicals that are processed to produce two types of analgesics used as ingredients for popular over-the- counter drugs. The purchased chemicals are blended for 2 to 3 hours and then heated for 15 minutes. The results of the process are two separate analgesics, depryl and pencol, which are sent to a drying room until their moisture content is reduced to 6 to 8%. For every 1,300 pounds of chemicals used, 600 pounds of depryl and 600 pounds of pencol are produced. After drying, depryl and pencol are sold to companies that process them into their final form. The selling prices are $12 per pound for depryl and $30 per pound for pencol. The costs to produce 600 pounds of each analgesic are as follows: Chemicals $8,500 Direct labor 6,735 Overhead 9,900 The analgesics are packaged in 20-pound bags and shipped. The cost of each bag is $1.30. Shipping costs $0.10 per pound. Zanda could process depryl further by grinding it into a fine powder and then molding the powder into tablets. The tablets can be sold directly to retail drug stores as a generic brand. If this route were taken, the revenue received per bottle of tablets would be $4.00, with 10 bottles produced by every pound of depryl. The costs of grinding and tableting total $2.50 per pound of depryl. Bottles cost $0.40 each. Bottles are shipped in boxes that hold 25 bottles at a shipping cost of $1.60 per box.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. Complete the following comparison alternatives.

Per 600 pounds Process Further Sell Difference

Revenues

Bags

Shipping

Grinding

2. Should Zanda sell depryl at split-off, or should depryl be processed and sold as tablets and why.

3. If Zanda normally sells 265,000 pounds of depryl per year, what will be the difference in profits, in dollars, if deprul is processed further?

Bottles

Total

Sell or Process Further
Zanda Drug Corporation buys three chemicals that are processed to
produce two types of analgesics used as ingredients for popular over-the-
counter drugs. The purchased chemicals are blended for 2 to 3 hours and
then heated for 15 minutes. The results of the process are two separate
analgesics, depryl and pencol, which are sent to a drying room until
their moisture content is reduced to 6 to 8%. For every 1,300 pounds of
chemicals used, 600 pounds of depryl and 600 pounds of pencol are
produced. After drying, depryl and pencol are sold to companies that
process them into their final form. The selling prices are $12 per pound
for depryl and $30 per pound for pencol. The costs to produce 600
pounds of each analgesic are as follows:
Chemicals
$8,500
Direct labor
6,735
Overhead
9,900

Transcribed Image Text:The analgesics are packaged in 20-pound bags and shipped. The cost of each bag is $1.30. Shipping costs $0.10 per pound. Zanda could process depryl further by grinding it into a fine powder and then molding the powder into tablets. The tablets can be sold directly to retail drug stores as a generic brand. If this route were taken, the revenue received per bottle of tablets would be $4.00, with 10 bottles produced by every pound of depryl. The costs of grinding and tableting total $2.50 per pound of depryl. Bottles cost $0.40 each. Bottles are shipped in boxes that hold 25 bottles at a shipping cost of $1.60 per box.

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