Two products, alcohol and sodium, emerge from a joint process. The alcohol has b

Question

Two products, alcohol and sodium, emerge from a joint process. The alcohol has been allocated $20,800 of the total joint costs of $34,000. A total of 2,000 gals. of alcohol are produced from the joint process. The alcohol can be sold at the split-off point for $20 per gal., or it can be processed further into mouthwash for an additional total cost of $14,000 and then sold for $22 per gal. If the alcohol is processed further and sold as mouthwash, what would be the effect on the overall profit of the company compared with sale in its unprocessed form as alcohol? Do you recommend selling the alcohol or processing it into and selling it as mouthwash? (Show your calculations)

Explanation / Answer

answer

revenue if processed further = 34000

revenue if sold as is = 40000

incremental revenue = - 6000

add additional costs = -14000

incremental income loss = - 20000

overall profit of the company will decrease by 20000 we recommed selling alcohal

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