Question

What is the difference in operating income between processing the cat bowls further versus selling them off at the split-off point?

Answer 1

Answer: -$1,920

Step-by-step explanation:

Operating Income if processed further would be;

= (Sales * Price) - Incremental Cost

= (1,000 * $14) - 4,920

= 14,000 - 4,920

= $9,080

Operating Income if sold off at split-off point;

= Sales * Price

= 1,000 * $11

= $11,000

Difference

= Processed Further - Sold at split-off

= 9,080 - 11,000

= -$1,920

Difference would be an Operating (loss) of $1,920.