978-0133428704 Chapter 16 Solution Manual Part 6

subject Type Homework Help
subject Pages 9
subject Words 2012
subject Authors Charles T. Horngren, Madhav V. Rajan, Srikant M. Datar

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Potential incremental income from preparing and selling the coal fines:
Minimum
Maximum
Incremental income per ton
(Market price Incremental costs)
$9 ($14 $5)
$22 ($25 $3)
Incremental income ($9; $22 405,000)
$3,645,000
$8,910,000
The incremental loss from sizing and cleaning the raw coal is $16,985,000 as calculated in
requirement 1. Analysis indicates that relative to selling bulk raw coal, the effect of further
processing and selling coal fines is not beneficial at either minimum or maximum incremental
income levels. Hence, further processing is still not in Newcastle’s interest. In fact, dividing the
loss of $48,710,000 by the coal fines output of 405,000 tons reveals that the selling price of coal
fines would have to increase to create an incremental income of at least $41.94 per ton for further
processing to become Newcastle’s preferred option.
Note that other than the financial implications, some factors that should be considered in evaluating
a sell-or-process-further decision include the following:
Stability of the current customer market for raw coal and how it compares to the market
for sized and cleaned coal
Storage space needed for the coal fines until they are sold and the handling costs of
coal fines
Reliability of cost (e.g., rail freight rates) and revenue estimates and the risk of
depending on these estimates
Timing of the revenue stream from coal fines and impact on the need for liquidity
Possible environmental problems, i.e., dumping of waste and smoke from unprocessed
coal
16-36 (30 min.) Joint-cost allocation, process further or sell.
Iridium Technologies manufactures a variety of flash memory chips at its main foundry in Anam,
Korea. Some chips are sold by Iridium to makers of electronic equipment while others are
embedded into consumer products for sale under Iridium’s house label, Celeron. At Anam, Iridium
produces three chips that arise from a common production process. The first chip, Apple, is sold
to a maker of smartphones and personal computers. The second chip, Broadcom, is intended for a
wireless and broadband communication firm. Iridium uses the third chip to manufacture and
market a solid-state device under the Celeron name.
Data regarding these three products for the fiscal year ended June 30, 2014, are given below.
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