Question

Gutten company makes 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			$		7			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				$	11		per pound
C	$	18,000				$	19		per gallon

Which products should be processed further?

Answer Choice's

• A and B

• A, B, and C

• B and C

• A and C

Answer 1

B & C

	A	B	C
Units	10000	22000	5000
Additional Processing cost	$     53,000	$     38,000	$     18,000
Cost per Unit	$          5.30	$          1.73	$          3.60
Selling Price post processing	$                7	$              11	$              19
Net income	$                2	$                9	$              15
Selling Price pre processing	$                5	$                7	$              13
Incremental income on processing	$              (3)	$                2	$                2