American Corporation has $200,000 of joint processing costs and is studying whet

Question

American Corporation has $200,000 of joint processing costs and is studying whether to process J and K beyond the split-off point. Information about J and K follows. ProductI ProductK Tons produced Separable variable processing costs beyond split-off Selling price per ton at split-off Selling price per ton after additional processing 25,000 15,000 $64,000 $100,000 52 58 15 21 If American desires to maximize total company income, what should the firm do with regard to Products J and K? A. B. C. D. Product I Sell at split-off Sell at split-off Process beyond split-off Process beyond split-off Product K Sell at split-off Process beyond split-off Sell at split-off Process beyond split-off

Explanation / Answer

Product I Product K Selling price after processing 21 58 Selling price at split off point 15 52 Incremental selling price 6 6 Tons 25000 15000 Incremental revenue 150000 90000 Additional processing costs 64000 100000 Incremental income(loss) 86000 -10000 Product I process beyond split off point Product K sell at split off point Option C is correct

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