Sell or process further joint product decision Highland manufactures A and B fro

Question

Sell or process further joint product decision

Highland manufactures A and B from a joint process cost= $70,000. Six thousand pounds of A can be sold at split off for $20 per pound or processed further at an additional cost of $20,000 and then sold for $23. Ten thousand pounds of B can be sold at split off for $15 per pound or processed further at an additional cost of $13,000 and later sold for $17.

Which products should be processed further or not? Why? Give the dollar impact to income for each product based on your recomendation.

Explanation / Answer

Joint cost incurred is irrelevant as it will be incurred whether product is processed further or not

since product A result in loss of $- 2000 from further processing it should not be processed further .whereas

product B result in profit of $ 70000 from further procesing so it should be processed further.

A B Incremental sales revenue from further processing per pound 23-20=3 17-15=2 pounds produced 6000 10000 Total sales revenue 6000*3=18000 2*10000=20000 less:Incremental cost -20000 -13000 Incremental profit /(loss) -2000 7000

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