Answer:
A (5,250) sold at split-off
B 22,625 continue
C (10,400) sold at split-off
Explanation:
Result for further processing:
quantity ( further process price - raw price) less further processing cost
Product A
13,800 pounds x (29.5 - 24) - 81,150 = (5,250)
Product B
21,500 pounds (24.50 - 18) - 117,125 = 22,625
Product C
5,000 gallon ( 38.5 - 30) - 52,900 = (10,400)
We must understand that the join processing cost are already incurred (sunk) therefore, not relevant. We hould check if the further process increases or not the gross profit.
As B is the only which increase the gross profit we continue the processing. THe other product based on our cost structure are not viable
Answer:
A. ($5250) if sold at split-off
B. $22625 if processed further
C. ($10400) if sold at split off
Explanation:
Calculations: Quantity (Further process price – Raw price) – Further processing cost
Product A: 13800 (29.5 – 24) – (81150) = (5250)
Product B: 21500 (24.5 – 18) – 117125= 22625
Product C: 5000 (38.5 – 30) – 52900 = (10400)
1. Since, the split-off costs are already incurred so they can’t be reversed that is why they are called sunk costs but can see if the further process costs are adjustable so that we can cut them or pursue them if they are profitable.
2. The product B is the only product which is profitable and could be further processed, otherwise the products A and C are non-profitable.
