Question

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 $37 each and the cost of processing a batch to produce intermediate products A and B is $15. Intermediate product A can be sold as is for $21 or processed further for $13 to make Product X that is sold for $33. Intermediate product B can be sold as is for $45 or processed further for $26 to make Product Y that is sold for $66.

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?

Required B

	product X	Product Y
Financial advantage (disadvantage) from further processing
should each of the intermediate products, A and B, be sold as is or processed further?

Answer 1

Solution:

Please find the attached excel format for better understanding of the solution:

:Profit/(loss) from processing one batch of the common input into the products X and Y is equal to $8.

Their is financial disadvantage from further processing of Product A & B, hence we will sold as it is.