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TB Problem Qu. 12-198 Farrugia Corporation produces two ... Farrugia Corporation produces two intermediate products, A...

TB Problem Qu. 12-198 Farrugia Corporation produces two ...

Farrugia Corporation produces two intermediate products, A and B, from a common input. Intermediate product A can be further processed into Product X. Intermediate product B can be further processed into Product Y. The common input is purchased in batches that cost $29 each and the cost of processing a batch to produce intermediate products A and B is $12. Intermediate product A can be sold as is for $17 or processed further for $11 to make Product X that is sold for $26. Intermediate product B can be sold as is for $36 or processed further for $22 to make Product Y that is sold for $52.

Required:

a. Assuming that no other costs are involved in processing the common input or in selling products, what is the profit (loss) from processing one batch of the common input into the products X and Y?

b. What is the Financial advantage (disadvantage) from further processing? Should each of the intermediate products, A and B, be sold as is or processed further?

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Answer #1

Because of further processing of products A & B to generate X & Y is disadvantage because profit earned from sale of A & B products is more than the profit earned from further processing & sale of X & Y

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