Center Company currently produces three products from a joint process. The joint

Question

Center Company currently produces three products from a joint process. The joint process has total costs of 517,000 per month. All three products, A, B & C, are immedialely saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional prooessing and be sold as a more complete product. The folilowing information is avalable: Sales Sales of Further 4,700 20 22 $3,00 18,200 21 23 1.50 10,700 27 32 4.00 a-1. Should Product A be sold immediately or sold after processing further? Set Now e Sell Later a-2. How much will the decision affect proft? b-1. Should Product 8 be sold immedietely or sold after processing further? Sell Now Soll Lator b-2.How much will the decision affect proft? c-1. Shouid Product C bà sod immediately or soid affor processing further? Soll Now C Setf Late o-2 How much wil the decision affect proft? Aftuct Proft by

Explanation / Answer

a-1

Incremental selling price = 22 - 20 = 2

Further processing cost = 3

As the incremental selling price is less than the further processing cost it would result in loss. So Product A should be sold now.

Sell now

a-2

Loss = (Further processing cost - Incremental selling price) * No of units

= (3 - 2) * 4,700

= 4,700

Decision effect profit by 4,700.

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b-1

Incremental selling price = 23 - 21 = 2

Further processing cost = 1.5

As the incremental selling price is greater than the further processing cost it would result in profit. So Product A should be sold later.

Sell later.

b-2

Profit = (Incremental selling price - Further processing cost) * No of units

= (2 - 1.5) * 18,200

= 9,100

Decision effect profit by 9,100.

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c-1

Incremental selling price = 32 - 27 = 5

Further processing cost = 4

As the incremental selling price is greater than the further processing cost it would result in profit. So Product A should be sold later.

Sell later.

c-2

Profit = (Incremental selling price - Further processing cost) * No of units

= (5 - 4) * 10,700

= 10,700

Decision effect profit by 10,700.

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