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$($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 yleid the following profit:

Selling price $($$$2.30$ per pound$)$

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

Wrofit per pound

$\frac{1\mathrm{.}25}{51\mathrm{.}85}$

If the company were to further process the T$-$bone steaks, then cutting one side of a T$-$bone steak provides the flet mignon and cutting the other side provides the New York cut. One $16-$ounce T$-$bone steak cut in this way will yleld one $6-$ounce filet mignon and one $8-$ounce New York cur: the remaining ounces are waste. It costs $$0\mathrm{.}17$ to further process one T$-$bone $5$ teak into the filet mignon and New York cuts. The filet mignon can be $$0$ id for $$4,00$ per pound, and the New York cut can be sold for $$3\mathrm{.}80$ per pound.

Required:

What is the financial advantage $($disaciantage$)$ of further processing one T$-$bone steak into flet mignon and New York cur steaks?

$2$ Wiould you recommend that the T$-$bone steaks, be sold as ininally cut or processed furthe?

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