A joint production process at Specialty Jams Farm results in two products, cherry jelly and cherry...
A joint production process at Specialty Jams Farm results in two products, cherry jelly and cherry jam. The following cost and activity data relate to these two products:
|
Cherry jelly |
Cherry jam |
|
|
Joint costs allocated |
$10,000 |
$12,000 |
|
Number of units produced from joint process |
2 comma 4002,400 |
2 comma 4002,400 |
| Selling price at
splitminus−off point |
$ 2.70$2.70 |
$1.75 |
|
Selling price after processing further |
$ 5.50$5.50 |
$2.00 |
|
Cost of processing further |
$ 2 comma 200$2,200 |
$2,000 |
Cherry jelly can be sold asminus−is (at the splitminus−off point) for $2.70 per unit, or it can be processed further into a specialty cherry smoothie and then sold for $5.50
per unit. If cherry jelly is processed further into the specialty cherry smoothie, what would be the overall effect on operating income?
A.$6,480 net increase in operating income
B.$4,520 net increase in operating income
C.$4,520 net decrease in operating income
D.$6,480 net decrease in operating income
Homework Answers
Increase (Decrease) in operating income
= (Sale value after processing - split-off price) *units produced - Cost of further processing
= [(5.50-2.70)*2400]- 2200
= 4520
Option B is the answer
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