Question

Ginburg Inc. produces X-547 in a joint production process. The company is considering whether to sell X- 547 at the split-off point or process the product further, producing four units of Xylene for each one unit of X-547. The following information is available:

Joint costs to produce one unit of  X-547: $75

Selling price per unite of X-547: $100

Variable manufacturing costs of further processing of one unit of X-547: $40

Selling price per unit of Xylene: $45

Using a correct analysis (show your work), indicate if Ginsburg should sell X-547 should sell X-547 as is or process it further into Xylene.

Answer 1

Answer

If X-547 is not further processed

Selling Price = $100

Cost    = $75

Profit =$25($100-$75)

If X-547 is further processed

Producing four units of Xylene for each one unit of X-547

Selling Price of each Xylene = $45

Selling Price of 4 Xylene = $180 (4*$45)

less Joint Cost = $75

Less Further Processing cost =$40

Profit =$65($180-$75-$40)

Ginsburg should not sell X-547 & should sell X-547 as is or process it further into Xylene..

as Profit is maximum when X-547 is further processed to Xylene