Ajax Company currently produces three products from a joint process. The joint p

Question

Ajax Company currently produces three products from a joint process. The joint process has total costs of $505,000 per month. All three products, A, B & C, are immediately saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional processing and be sold as a more complete product. The following information is available:

Ajax Company currently produces three products from a joint process. The joint process has total costs of $505,000 per month. All three products, A, B & C, are immediately saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional processing and be sold as a more complete product. The following information is available:

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Product A should be sold immediately because if it is processed further, the company will have to sell product A at the same price of $19, but will have to incurr additional processing cost of $6 per unit.

Answer is Sell Now.

Part B:

This decision will affect the profit with an amount of 30600 (5100*6). The company will be able to save this amount if Product A is sold immediately.

Answer is 30600.

Part C:

Product B

Product B should be sold later because if it is processed further, the company will be able to sell product B at a higher price of $29 at an additional processing cost of $2 per unit only.

Answer is Sell Later.

Part D:

This decision will affect the profit with an amount of 210720 (17560*(29-15) - 17560*2). The company will be able to earn 210720 more by processing the product further.

Answer is 210720.

Part E:

Product B should be sold later because if it is processed further, the company will be able to sell product C at a higher price of $40 at an additional processing cost of $6 per unit only.

Answer is Sell Later.

Part F:

This decision will affect the profit with an amount of 217170 (11430*(40-15) - 11430*6). The company will be able to earn 217170 more by processing the product further.

Answer is 217170.

Thanks.

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