Question

BioMorphs Corporation produces three products in a monthly joint production process. During the first stage of the process liquids and chemicals costing $44,500 are heated and three different compounds emerge: 3,000 gallons of Molecue worth $22 per gallon are created from the steam; 10,000 gallons of Borphue worth $15 are drained from the tank; and 1,000 gallons of the tank residue, labeled as Polygard, are sold as fertilizer for $6.00 per gallon. Before Molecue is sold, it must be purified in another process that costs $11,000, and before the Polygard fertilizer is sold, it must be bottled at a price of $1.50 per gallon. a. What is the profitability of the joint process? b. Is it profitable to process Molecue further if it can be sold at split-off for $6 per gallon? c. BioMorphs has an offer to buy Polygard bulk at the split-off point without bottling for $3,100 per month. What is the incremental profit (loss) to BioMorphs if it accepts the offer? Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the profitability of the joint process? Total profit Required A Required B >

Answer 1

Answer A

		Molecue	Borphue	Polygard	Total
	Units Processed & Sold	3,000	10,000	1,000
	Unit Selling Price	22	15	6
	Total Sales Revenue	66,000	1,50,000	6,000	2,22,000
Less:	Product Specific Cost	11,000		1,500	12,500
Less:	Joint Cost	-	-	-	44,500
	Net Profit from Joint Process				1,65,000

Answer B

Additional Cost to Process Molecue	11000
No. of Units of Molecue	3000
Per unit additonal cost	3.67
Sale Price after further processing	22
Sale Price at split off point	6
Additonal Revenue per unit	16
No. of Units of Molecue	3,000
Total Additional Revenue	48,000
Additonal Cost of further processing	11,000
Net gain of Further Processing	37,000

Thus it is beneficial to process Molecue further.

Answer C

Existing Revenue	6000
Revenue of Bulk Offer	3100
Reduction in Sales Revenue	2900
Reduction in Bottling Cost	1500
[1000 units * 1.50]
Net (loss) of accepting the bulk order	(1,400)