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: Multiple Choice Product A. Product B. Both products. Neither of the products.

Answer 1

The company should process further:

Product B.

Step-by-step explanation:

a) Data and Calculations:

Product A sales value at split-off point = $1,200

Cost of further processing of Product A = $600

Sales proceeds from Product A after further processing = $1,700

Product B sales value at split-off point = $3,000

Cost of further processing of Product B = $800

Sales proceeds from Product B after further processing = $4,000

b) There is no additional revenue gained from further processing of Product A. Instead, there is a loss of $100 ($1,800 - $1,700). This is unlike Product B where there is a gain of $200 ($4,000 - $3,800) from further processing. The company's decision should be to sell Product A at split-off while further processing Product B to realize incremental revenue.