Product | Pounds Produced |
Sales Value at Split-Off |
Final Sales Value |
Additional Cost |
Sea Tea 9,000 $ 60,000 $ 90,000 $ 35,000
Sea Paste 6,800 74,000 160,000 50,000
Sea Powder 2,000 70,000 85,000 14,000
Required: a-1. Compute the incremental benefit (cost) of further processing to these products. a-2. Which products should Kelp process beyond the split-off point? b. At what price per pound would it be advantageous for Kelp Company to sell Sea Paste at the split-off point rather than process it further?
Required: a-1. Compute the incremental benefit (cost) of further processing to these products
Sea tea | Sea paste | Sea powder | |
Final sales value | 90000 | 160000 | 85000 |
Sale value at split off | 60000 | 74000 | 70000 |
Incremental revenue | 30000 | 86000 | 15000 |
Incremental cost | 35000 | 50000 | 14000 |
Incremental profit (loss) | -5000 | 36000 | 1000 |
. a-2. Which products should Kelp process beyond the split-off point?
Product Sea paste and sea powder should be process beyond split off point
b) At what price per pound would it be advantageous for Kelp Company to sell Sea Paste at the split-off point rather than process it further?
Price per pound at split off point = 74000+36000/6800 = $16.18 per pound
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