Two products, LB and NH, emerge from a joint process. Product LB has been alloca
ID: 2341327 • Letter: T
Question
Two products, LB and NH, emerge from a joint process. Product LB has been allocated $27,300 of the total joint costs of $48,000. A total of 2,200 units of product LB are produced from the joint process. Product LB can be sold at the split-off point for $11 per unit, or it can be processed further for an additional total cost of $10,200 and then sold for $13 per unit. If product LB is processed further and sold, what would be the effect on the overall profit of the company compared with sale in its unprocessed form directly after the split-off point?
$33,900 less profit
$21,500 more profit
$5,800 less profit
$18,400 more profit
Explanation / Answer
SOLUTION
Option C i.e $5,800 less profit is the correct answer.
Profit unprocessed = $27,300 - (2,200 units * $11)
= $27,300 - $24,200 = $3,100
Profit processed = ($27,300 + $10,200) - (2,200 units * $13)
= $37,500 - $28,600 = $8,900
Effect on the overall profit of the company = $8,900 - $3,100 = $5,800
=$5,800 less profit
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