Question

Center Company currently produces three products from a joint process. The joint process has total costs of $511,000 per month. All three products, A, B & C, are immediately saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional processing and be sold as a more complete product. The following information is available: Units Immediate Sales Price Later Sales Price Unit Cost of Further Processing A 4,500 $ 18 $ 20 $ 3.00 B 18,000 $ 20 $ 25 $ 4.00 C 10,500 $ 28 $ 32 $ 3.00

a-1. Should Product A be sold immediately or sold after processing further? Sell Now Sell Later

a-2. How much will the decision affect profit?

b-1. Should Product B be sold immediately or sold after processing further? Sell Now Sell Later

b-2. How much will the decision affect profit?

c-1. Should Product C be sold immediately or sold after processing further? Sell Now Sell Later

c-2. How much will the decision affect profit?

Answer 1

	Product	Units	Immediate		Later		Unit Cost of Further Processing
			Sales		Sales
			Price		Price
	A	4500	$   18.00		$   20.00		$    3.00
	B	18000	$   20.00		$   25.00		$    4.00
	C	10500	$   28.00		$   32.00		$    3.00
a)	Given The product A has Sales perice at cut off = 18
	Price after Cut off = 20
	Net gain from further processing = -18+(20-3) =-1
	Hence Product A should be sold immediately after cutoff
	The decision will effect the profit = 4500*(1) = 4500
b)	Given The product B has Sales perice at cut off = 20
	Price after Cut off = 25
	Net gain from further processing = -20+(25-4) =1
	Hence Product B should be sold after processing
	The decision will effect the profit = 18000*(1) = 18000
c)	Given The product B has Sales perice at cut off = 28
	Price after Cut off = 32
	Net loss from further processing = -28+(32-3) =1
	Hence Product C should be sold after processing
	The decision will effect the profit = 10500*(1) = 10500