Question

Sell at 5 plit-Off or Process Further B020 inc. manufactures two products from a joint production process. The joint process costs $110,000 and vields 6,000 pounds of LTE compound and 14,000 pounds of HS compound. LTE can be sold at split-oft for $55 per pound. HS can be sold at split-off for $11 per pound. A buyer of HS asked Bozo to process HS further into c5 compound. If HS were processed further, it would cost $40,800 to turn 14,000 pounds of HS into 4,000 pounds of CS. The CS would sell for $63 per pound. Required: 1. What is the contribution to income from seling the 14,000 pounds of 14 at split-off? x 2. CONCEPTUAL CONNECTION: What is the contribution to income from procesing the 14,000 pounds of HS into 4,000 pounds of CS? x Should Boro continue to sell the HS at split-off or process it further into CS?

Answer 1

The contribution to income from selling the HS at split-off is $154,000. The contribution to income from processing the HS into CS is $119,200. Boro should continue to sell the HS at split-off if the contribution to income from selling is higher.

Step-by-step explanation:

The contribution to income from selling the 14,000 pounds of HS at split-off can be calculated by multiplying the quantity of HS sold (14,000 pounds) by the selling price per pound ($11). This would result in a contribution to income of $154,000.

The contribution to income from processing the 14,000 pounds of HS into 4,000 pounds of CS can be calculated by subtracting the additional processing costs ($40,800) from the revenue generated by selling the CS ($63 per pound multiplied by 4,000 pounds). This would result in a contribution to income of $119,200.

To decide whether Boro should continue to sell HS at split-off or process it further into CS, they should compare the contribution to income from each scenario. If the contribution to income from selling HS at split-off is higher than the contribution to income from processing it further into CS, Boro should continue to sell HS at split-off. If the contribution to income from processing HS into CS is higher, Boro should process it further.