Question

Product Pounds Produced Sales Value at Split-Off Final Sales Value Additional Cost Sea Tea 9,000 $...

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?

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Answer #1

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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