Question

Sell or process further joint product decision

Highland manufactures A and B from a joint process cost= $70,000. Six thousand pounds of A can be sold at split off for $20 per pound or processed further at an additional cost of $20,000 and then sold for $23. Ten thousand pounds of B can be sold at split off for $15 per pound or processed further at an additional cost of $13,000 and later sold for $17.

Which products should be processed further or not? Why? Give the dollar impact to income for each product based on your recomendation.

Answer 1

Joint cost incurred is irrelevant as it will be incurred whether product is processed further or not

	A	B
Incremental sales revenue from further processing per pound	23-20=3	17-15=2
pounds produced	6000	10000
Total sales revenue	6000*3=18000	2*10000=20000
less:Incremental cost	-20000	-13000
Incremental profit /(loss)	-2000	7000

since product A result in loss of $- 2000 from further processing it should not be processed further .whereas

product B result in profit of $ 70000 from further procesing so it should be processed further.