Green leaf produces three joints from mini leaves. At the split-off point, three
ID: 2475643 • Letter: G
Question
Green leaf produces three joints from mini leaves. At the split-off point, three basic products emerge: Mint tea, Mint paste, and Mint powder. each of these products can be either sold at the split-off point or processed further. if they are processed further, the resulting products can be sold as delicacies to health food stores. Cost and revenue information is as follows:
Sales value and additional costs processed further
pounds produced sales value at split-off final sales value additional cost
Mint tea 10,000 $80,000 $100,000 $30,000
Mint paste 5,000 100,000 180,000 60,000
Mint powder 3,000 90,000 110,000 10,000
Instructions
a. which products should green leaf process beyond the split-off point?
b. At what price per pound would it be advantageous for green leaf to sell Mint paste at the split-off point rather than process it further?
Explanation / Answer
Particulars ::::::::::::::::::::::::::::::: Mint tea:::::::::::::::::::::Mint paste:::::::::::::::::::::Mint powder
Final Sales Value:::::::::::::::::::::::$100,000:::::::::::::::::::$180,000::::::::::::::::::::::::$110,000
Less:
sales value at split-off ::::::::::::::::$80,000:::::::::::::::::::::$100,000::::::::::::::::::::::::$90,000
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Increase in value::::::::::::::::::::::::$20,000:::::::::::::::::::::$80,000:::::::::::::::::::::::::::$20,000
Less:
Additional Cost:::::::::::::::::::::::::$30,000::::::::::::::::::::::$60,000:::::::::::::::::::::::::::$10,000
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Incremental(profit/loss)::::::::::::::($10,000)::::::::::::::::::$20,000:::::::::::::::::::::::::::$10,000
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Process beyond the split-off point are Mint paste and Mint powder because both have positive value
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b) Particulars::::::::::::::::::::::::::::::Amount
Final Sales Value:::::::::::::::::::::::$180,000
Less:
Sales value at split-off:::::::::::::::$100,000
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:::::::::::::::::::::::::::::::::::::::::::::::::$80,000
Less:
Additional Cost:::::::::::::::::::::::::::$60,000
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Additional Benefit:::::::::::::::::::::::::$20,000
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price per pound calculations
Increment benefit per pounds::::::::$4 ($20,000/5,000pounds=$4)
ADD:
Current split off :::::::::::::::::::::::::::$20($100,000/5000=$20 )
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Mint paste at the split-off point :::::::$24
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