Question

Please answer with calculation n workout tq

Minutemaid Ltd. Is a farm based cider and juice business. Currently, Minutemaid processes 240,000 Literes of juice per annum at a cost of $160,000. The input yields 180,000 literes of apple and 40,000 literes of cider when processed at the split- off point in the process. The apple juice currently sells at 8/5 Litre drum and cider sells $1/Litre. Minutemaid is considering processing the apple juice further into gourmenttype of pressed juice. This will yiled $ 10 for every 5 Litere drum of jiuice and cost an additional$ 16,000 per annum to process half of the current juice output-Remaining half of the juice will not be processed further and can be sold at the process mentioned above.He can also process the cider into a stronger apple brandy. Due to the natyre of technology involved, all existing cider output would have to be processed. The additional cost of processing the cider is $ 20,000 and it could be sold for $1.25 per Litre Required Using the principles of relevant costing, Advise on Minutemaid should process the apple juice further into pressed juice and process the cider further into apple brandy

Answer 1

In deciding whether to sell a joint product at the split off point or to process it further, the common costs incurred upto the split off point are sunk costs and hence not relevant.

Revenue less additional Cost is compared with the revenue at the split off point in order to take this decision.

	Process Apple Juice
Revenue 90,000*10/5	180,000
Less: Additional Cost of Processing	16,000
Net Revenue	164,000
Revenue at split off point 90,000*8/5	144,000
Benefit	20,000
Decision	Process further

	Process Cider
Revenue 40,000*1.25	50,000
Less: Additional Cost of Processing	20,000
Net Revenue	30,000
Revenue at split off point 40,000*1	40,000
Benefit	(10,000)
Decision	Do not Process