ACC 208 Group Writing Assignment 2

Analytical Thinking:

Midwest Mills has a plant that can mill wheat grain into a cracked wheat cereal and then further mill the cracked wheat into flour. The company can sell all the cracked wheat cereal that it can product at a selling price of $490 per ton. In the past, the company has sold only part of its cracked wheat as cereal and has retained the rest for further milling into flour. The flour has been selling for $700 per ton, but recently the price has become unstable and has dropped to $625 per ton. The cost and revenues associated with a ton of flour follows:

Per Ton of Flour

Selling Price

$625
Cost of Manufacture:

Raw Materials:

Enrichment Materials
$80

Cracked Wheat
470

Total Raw Materials
550

Direct Labor
20

Manufacturing Overhead
60
630
Manufacturing Profit (loss)

$ (5)

Because of the weak price for flour, the sales manager believes that the company should discontinue milling flour and use its entire milling capacity to produce cracked wheat to sell as cereal. The same milling equipment is used for both products. Milling one ton of cracked wheat into one ton of flour requires the same capacity as milling one ton of wheat grain into one of cracked wheat. Hence, the choice is between one ton of flour and two tons of cracked wheat. Current cost and revenue data on cracked wheat cereal follows:

Per Ton of Cracked Wheat

Selling Price

$490
Cost of Manufacturing:

Wheat Grain
$ 390

Direct Labor
20

Manufacturing Overhead
60
470
Manufacturing Profit

$ 20

The sales manager argues that because the present $625 per ton price for flour results in a $5 per ton loss, the milling of flour should not be resumed until the price per ton rises above $630. The company assigns manufacturing overhead cost to the two products on the basis of milling hours. The same amount of time is required to mill either a ton of cracked wheat of a ton of flour. Virtually all manufacturing