A joint production process at Sunny Brooks Dairy results in two products, cherry

Question

A joint production process at Sunny Brooks Dairy results in two products, cherry jelly and cherry jam. The following cost and activity data relate to these two products: Cherry jelly can be sold as-is (at the split-off point) for $2.50 per unit, or it can be processed further Into a specialty cherry smoothie and then sold for $5.00 per unit. If cherry jelly is processed further Into the specialty cherry smoothie, what would be the overall effect on operating Income? Select one: $2,800 net decrease in operating Income $5,000 net decrease in operating income $5,000 net Increase In operating Income $2,800 net increase in operating Income

Explanation / Answer

If Cherry Jelly is Processed Further

Operating Income increase by = (Selling Price after processing further - Selling Price at splitt off point)*No of Unit - Cost of Processing Further

Operating Income increase by = (5-2.5)*2000 - 2200

Operating Income increase by = 2800

Answer

d) $ 2800 net increase in operating income

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