A company puts four products through a common production process. This process c

Question

A company puts four products through a common production process. This process costs $100,000 each year. The four products can be sold when they emerge from this process at the "split-off point", or processed further and then sold. Data about the four prodicts for the coming period are:

Determine which products should be sold at the split off point and which should be processed further.

Product Volume Unit Sales Price Per Unit at Split Off Point Unit Sales Price Per Unit after Further Processing Additional Processing Costs Stroller 20,000 lb $28 $42 $400,000 Walker 10,000lb $7 28 144,000 Jogger 5000lb 36 58 120,000 Runner 5000lb 18 22 40,000

Explanation / Answer

Product Stroller Walker Jogger Runner Unit Sales Price Per Unit after Further Processing $              42.00 $            28.00 $            58.00 $            22.00 Less:Unit Sales Price Per Unit at Split Off Point $              28.00 $               7.00 $            36.00 $            18.00 Additional Consideration for further processing $              14.00 $            21.00 $            22.00 $              4.00 Volume 20000.00 10000.00 5000.00 5000.00 Total Additional Consideration for further processing $    280,000.00 $ 210,000.00 $ 110,000.00 $   20,000.00 Less: Additional Processing Costs $    400,000.00 $ 144,000.00 $ 120,000.00 $   40,000.00 Profit/(Loss) in further processing $ (120,000.00) $    66,000.00 $ (10,000.00) $ (20,000.00) ANS: Further Process No Yes No No

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