Question

Kelp Company produces three joint products from seaweed. At the split-off point, three basic products emerge: Sea Tea, Sea Paste, and Sea Powder. Each of these products can either be sold at the split-off point or be processed further. If they are processed further, the resulting products can be sold as delicacies to health food stores. Cost and revenue information is as follows. Sales Value and Additional Costs If Processed Further Product Pounds Produced Sales Value at Split-Off Final Sales Value Additional Cost Sea Tea 9,000 $ 60,000 $ 90,000 $ 35,000 Sea Paste 4,000 80,000 160,000 50,000 Sea Powder 2,000 70,000 85,000 14,000 Required: a-1. Compute the incremental benefit (cost) of further processing to these products. a-2. Which products should Kelp process beyond the split-off point

Answer 1

a-1. Compute the incremental benefit (cost) of further processing to these products.

• sea tea = ($5,000) loss
• sea paste = $30,000
• sea powder = $1,000

a-2. Which products should Kelp process beyond the split-off point

• sea paste and sea powder

Step-by-step explanation:

Sales Value and Additional Costs If Processed Further

Product Pounds Sales value Final sales Additional

produced at split-off value cost

Sea Tea 9,000 $60,000 $90,000 $35,000

Sea Paste 4,000 $80,000 $160,000 $50,000

Sea Powder 2,000 $70,000 $85,000 $14,000

incremental benefit of further processing:

sea tea = ($90,000 - $60,000) - $35,000 = -$5,000

sea paste = ($160,000 - $80,000) - $50,000 = $30,000

sea powder = ($85,000 - $70,000) - $14,000 = $1,000