6-55 Western, Corp., produces two products, cigars and chewing tobacco, from a j

Question

6-55 Western, Corp., produces two products, cigars and chewing tobacco, from a joint process involving the processing of tobacco leave. Joint costs are $60,000 for this process, and yield 2,000 pounds of cigars and 4,000 pounds of chewing tobacco. Cigars sell for $80 per pound, and chewing tobacco sells for $20 per pound. Cigars requiere $80,000 in separable costs, while chewing tobacco requieres $50,000 in separable costs. Chewing tobacco can be processed further (for $30,000 in additional separable costs) into a mint-flavored premium chewing tobacco that would sell fot $30 per pound. 1. Should Western process chewing tobacco into premium chewing tobacco? 2. What in the maximun amount the joint costs can increase before (a) in the would not the better to process chewing tabacco fouther into premium chewing tabacco, and (b) it would to better to cease processing tobacco leaves to produce cigars and premium chewing tobacco?

Explanation / Answer

1. Yes , it Should Western process chewing tobacco into premium chewing tobacco

It will increase Net Income from $10000 to $20000 in chewing tobacco

2. a) It would not the better to process chewing tabacco fouther into premium chewing tabacco, if additional seperable cost is more than $50,000

.and (b) the maximun amount the joint costs can increase it would to better to cease processing tobacco leaves to produce cigars and premium chewing tobacco is from $60,000 to $120001 or more

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