Question

Concord Corporation produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: Product Sales Value at Split-off Additional Variable Costs Sales Value after Further Processing Green lumber $159600 $24000 $178000 Rough lumber 126000 28500 176400 Sawdust 106000 20300 134400 What is the increase in profit if the appropriate products are processed further?

Answer 1

only two products should be processed further because they will generate additional profit:

• further processing rough lumber generates $21,900 in additional profits
• further processing sawdust generates $8,100 in additional profits
• total additional profits = $30,000

Step-by-step explanation:

Product Sales value Additional var. Sales value after

at split-off costs further processing

Green lumber $159,600 $24,000 $178,000

Rough lumber $126,000 $28,500 $176,400

Sawdust $106,000 $20,300 $134,400

the additional profits generated by further processing are:

green lumber = ($178,000 - $159,600) - $24,000 = -$5,600

rough lumber = ($176,400 - $126,000) - $28,500 = $21,900

sawdust = ($134,400 - $106,000) - $20,300 = $8,100