Question

Gusler company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $98,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:
Product			Selling Price								Quarterly Output
A			$		5			per pound				10,000	pounds
B			$		6			per pound				22,000	pounds
C			$		13			per gallon				5,000	gallons
Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:
Product	Additional Processing Costs					Selling Price
A	$	53,000				$	7		per pound
B	$	38,000				$	10		per pound
C	$	18,000				$	20		per gallon

Which products should be processed further?

Multiple Choice

• A and C

• B and C

• A, B, and C

• A and B

Answer 1

Correct answer---------------B and C

.

Only B and C gives additional income by further processing hence only B and C should be further processed

Product A has additional cost more than additional revenue from further processing.

		Product
		A	B	C
A	Normal price	$              5.00	$               6.00	$               13.00
B	Multiplied by : Units	10000	22000	5000
C=A x B	Normal sales revenue	$   50,000.00	$ 132,000.00	$       65,000.00
D	Price After further processing	$              7.00	$            10.00	$               20.00
E	Multiplied by : Units	10000	22000	5000
F=D x E	Revenue IN further processing	$   70,000.00	$ 220,000.00	$     100,000.00
F=F-C	Additional revenue	$   20,000.00	$    88,000.00	$       35,000.00
G	Less: Additional cost of Processing	$   53,000.00	$    38,000.00	$       18,000.00
H= F-G	Additional Benefit	$ (33,000.00)	$    50,000.00	$       17,000.00