Elm Petroleum has spent $204,000 to refine 61,000 gallons of petroleum distillate, which can be sold for $6.30 per gallon. Alternatively, Elm can process the distillate further and produce 58,000 gallons of cleaner fluid. The additional
Requirements
- 1. Diagram Elm’s decision alternatives, using Exhibit 25-18 as a guide.
- 2. Identify the sunk cost. Is the sunk cost relevant to Elm’s decision?
- 3. Should Elm sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives.
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