Question

Yasmin Co. can further process Product B to produce Product C. Product B is currently selling for $35 per pound and costs $27 per pound to produce. Product C would sell for $57 per pound and would require an additional cost of $25 per pound to produce. The differential cost of producing Product C is a. $25 per pound b. $27 per pound c. $57 per pound d. $35 per pound

Answer 1

Answer:

OPTION a: $ 25 per pound

Note:

The cost in selling as it is is zero but on processing further is $ 25. So, differential cost is $ 25.

Workings:

Process further	Amount	Sale at split off point	Amount
Sales value after processing	$       57	Sales value	$       35
Less: Extra Cost	$       25
Net benefit	$       32	Net benefit	$       35

The company should sell at split-off point for incremental benefit of $ 3.

In case of any doubt or clarification, feel free to come back via comments.