BioMorphs Corporation produces three products in a monthly joint production proc
ID: 2510095 • Letter: B
Question
BioMorphs Corporation produces three products in a monthly joint production process. During the first stage of the process liquids and chemicals costing $78,400 are heated and three different compounds emerge: 3,000 gallons of Molecue worth $22 per gallon are created from the steam; 10,000 gallons of Borphue worth $15 are drained from the tank; and 1,000 gallons of the tank residue, labeled as Polygard, are sold as fertilizer for $7.50 per gallon. Before Molecue is sold, it must be purified in another process that costs $10,400, and before the Polygard fertilizer is sold, it must be bottled at a price of $1.50 per gallon.
a. What is the profitability of the joint process?
b. Is it profitable to process Molecue further if it can be sold at split-off for $9 per gallon?
c. BioMorphs has an offer to buy Polygard bulk at the split-off point without bottling for $3,300 per month. What is the incremental profit (loss) to BioMorphs if it accepts the offer?
Explanation / Answer
Answer a
Computation of profitability of the joint process
Answer b
Yes , its is profitable to process Molecue further than to be sold at split-off point
Explanation : Incremental revenue for further processing = ($22 - $9) * 3,000 gallons = $39,000
Incremental cost for further processing = $10,400.
Incremental Profit if processed further = $39,000 - $10,400. = $28,600.
Answer c
Decrease in revenue for Polygard if offer is accepted = (1,000 gallons * $7.50) - $3,300 = $4,200
Saving in cost for Polygard if offer is accepted = 1,000 gallons * $1.50 = $1,500
Incremental profit (loss) to BioMorphs if it accepts the offer = $1,500 - $4,200 = ($2,700)
Particulars Amount ($) Amount ($ Sales Revenue : Molecue ( 3,000 gallons * $22) 66,000 Borphue (10,000 gallons * $15 ) 150,000 Polygard (1,000 gallons * $7.50) 7,500 Total Sales Revenue 223,500 Total Costs : Joint Cost 78,400 Purification Cost of Molecue 10,400 Cost of bottles for Polygard (1,000 gallons * $1.50 ) 1,500 Total Costs 90,300 Profitability of the joint process $133,200Related Questions
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