Question

Jones Company produces two products, A and C, at a cost of $150,000 in a joint process. The production process yields 20,000 pounds of product A and 15,000 pounds of product C. Both product A and C are saleable at the split-off point for $20 per pound and $15 per pound, respectively. Product A can be processed further at an additional cost of $160,000 to produce product B which would sell for $30 per pound. Product C can be processed further at an additional cost of $50,000 to produce product D which would sell for $18 per pound.   Which of the products should be processed further?

	A.	both product A and product C
	B.	product C only
	C.	product A only
	D.	neither product A and product C

Answer 1

	Product A	Product C
Selling Price after further processing	$             30	$           18
Selling Price at the split off point	$             20	$           15
Incremental Revenue per pound	$             10	$             3
Total Output in pounds	20,000	15000
Total Incremental Revenue	$   200,000	$   45,000
Total Incremental Processing Cost	$   160,000	$   50,000
Total Incremental Profit or loss	$     40,000	$   (5,000)

Product A should go for further process. So answer will be C

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