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Part 3 contains 2 Decision making recommendations that are independent of each other. Covers material in Module 17. Make sure

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Answer #1
Joint cost incurred upto the split off point is a sunk cost and hence not relevant
The product should be processed further if the revenue after processing exceeds the revenue before processing and additional processing costs
A B
Revenue after processing        132,000        180,000
Revenue before processing        120,000        150,000
Additional Processing costs           10,000           12,000
Net Benefit of processing             2,000           18,000
Both products should be processed further
Dollar impact is $2000 for A and $18000 for B
The products will be produced in the order of contribution margin per unit of constrained resource
M N
Contribution Margin per Unit 8 9
Labor hours per unit 2 3
Contribution Margin per hour 4 3
Hence, M will be produced first
Optimal Mix
Product Units Hours per Unit Total Hours
M 8000 2 16000
N 5000 3 15000
31000

1 Joint cost incurred upto the split off point is a sunk cost ar 2 The product should be processed further if the revenue at

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