Question

Superware, Inc. produces multiple products out of a common input. Geratin is one such product, which has a sales value of $15,000 at the split-off point. Joint costs allocated to Geratin are $12,000. Sales value of Geratin increases to $25,000 after further processing, and this processing will cost $7,000. What is the net profit or loss if Superware processes the product further?

Answer 1

Super inc. will have a net profit of $3,000 if it processes the product further.

Step-by-step explanation:

The sales value of Geratin without processing is $15,000.

Joint costs allocated to Geratin are $12,000.

After processing the revenue increases to $25,000.

The increase in revenue is

= $25,000 - $15,000

= $10,000

The increased cost is $7000.

Net profit

= $10,000 - $7,000

= $3,000

So Super inc. will have a net profit of $3,000 if it processes the product further.

Hence, it should process the product i.e Geratin further.