Question

Products A and B are joint products. Product A can be sold for $1,200 at the split-off point, or processed further at a cost of $600 and then sold for $1,700. Product B can be sold for $3,000 at the split-off point, or processed further at a cost of $800 and then sold for $4,000. The company should process further:

Answer 1

Answer:

Product B should be process further

Explanation:

A company should process further a product if the addtional revenue from the split-off point is greater than than the further processing cost.

Product A                                                                     $

Additional revenue ( 1,700 - 1,200)                         500

Further processing cost                                         (600)

Loss from further processing                                 (100)

Product B                                                                       $

Additional revenue ( 4,000 - 3,000)                        1000

Further processing cost                                          (800)

Loss from further processing                                  200

The company should process further Product B as doing do will increase net income by $200.

Product A should be sold at the split off point because processing further will reduce the net income of the company by $100