Question

BioMorphs Corporation produces three products in a monthly joint production process. During the first stage of the process liquids and chemicals costing $76,500 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 $10,700, 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 $10 per gallon?

c. BioMorphs has an offer to buy Polygard bulk at the split-off point without bottling for $3,000 per month. What is the incremental profit (loss) to BioMorphs if it accepts the offer?

Answer 1

Answer a.

The profitability of joint process = $ 133,300

Explanation:

The profitability of joint process = Profit from molecue + profit from borphue + profit from polygard

= (3,000*22) + (10,000*15) + (1,000*6) – 76,500 – 10,700 – (1,000*1.5)

= 66,000 + 150,000 + 6,000 – 76,500 – 10,700 – 1,500

= $ 133,300

Answer b.

It is profitable to process molecue further.

Explanation:

If molecue is sold at split off point, the company will get $ 30,000 (i.e. 3,000*10). If it is processed further, the profit to the company will be $ 55,300 [i.e. (3,000*22) – 10,700].

Answer c.

The incremental loss to biomorphs is $ 1,500.

Explanation:

If polygard is purchased in bulk, the company will get $ 3,000. If polygard is processed further, the company will get $ 4,500 [i.e. 1,000*(6-1.5)].

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