Lamar Corporation has a joint process, which produces three products called A, B

Question

Lamar Corporation has a joint process, which produces three products called A, B and C. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year are $10,000. Other relevant data are:

Sales Value Separable Processing Sales Value
Product at Split-Off Costs After Split-Off at Completion
A $94,000 $28,000 $116,000
B 60,000 8,000 82,000
C 66,000 14,000 80,000

Required:
A) Which products should be processed further? Why?
B) If the Lamar Company maximizes profits, what is the operating income?

Explanation / Answer

For A: Increase in sales value = 116,000 - 94,000 = 22,000 increase in costs = 28,000 income would decrease by 22,000 - 28,000 = -6,000 if it were processed further For B: Increase in sales value = 82,000 - 60,000 = 22,000 increase in costs = 8,000 income would increase by 22,000 - 8,000 = 14,000 if processed further For C: Increase in sales value = 80,000 - 66,000 = 14,000 increase in costs = 14,000 net income would neither increase nor decrease if processed further Required: A) Which products should be processed further? Why? Only A should be processed further. It's the only one that increases net income by processing further. B) If the Lamar Company maximizes profits, what is the operating income? A: 116,000 - 28,000 = 88,000 B: 60,000 C: 66,000 operating income = 88,000 + 60,000 + 66,000 - 10,000 = $204,000

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.