Question

gusler company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $98,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:
Product			Selling Price								Quarterly Output
A			$		5			per pound				10,000	pounds
B			$		6			per pound				22,000	pounds
C			$		13			per gallon				5,000	gallons
Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:
Product	Additional Processing Costs					Selling Price
A	$	53,000				$	7		per pound
B	$	38,000				$	13		per pound
C	$	18,000				$	19		per gallon

Which products should be processed further?

Multiple Choice

• B and C

• A, B, and C

• A and C

• A and B

Answer 1

Answer: B and C

Product B and C should be process further

Working notes for the above answer is as under

	A	B	C
Selling price after further processing	7	13	19
Selling price at the split-off point	5	6	13
Incremental revenue per pound or gallon	2	7	6
Total quarterly output in pounds or gallons	10,000	22000	5000
Total incremental revenue	20000	154000	30000
Total incremental processing costs	-53000	-38000	-18000
Total incremental profit or loss	-33000	116000	12000