Kelp Company produces three joint products from seaweed. At the split-off point,
ID: 2377997 • Letter: K
Question
Kelp Company produces three joint products from seaweed. At the split-off point, three basic products emerge: Sea Tea, Sea Paste, and Sea Powder. Each of these products can either be sold at the split-off point or be processed further. If they are processed further, the resulting products can be sold as delicacies to health food stores. Cost and revenue information is as follows:
Compute the Incremental benefit (cost) of further processing to these products. (Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)
Which products should Kelp process beyond the split-off point?
At what price per pound would it be advantageous for Kelp Company to sell Sea Paste at the split-off point rather than process it further? (Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)
Sales Value and AdditionalCosts If Processed Further Product Pounds
Produced Sales Value at Split-Off Final Sales
Value Additional
Cost Sea Tea 9,000 $ 60,000 $ 90,000 $ 35,000 Sea Paste 3,900 72,500 160,000 50,000 Sea Powder 2,000 70,000 85,000 14,000
Explanation / Answer
Hi,
Please find the answer as follows;
Part A-1
Part A-2
Sea powder and sea paste should be processed further.
Part B:
Incremental Benefit Desired to sell at Split off Point = (160000 - 72500 - 50000) = 37500/3900 = 9.62
Sales Price at Split off Point = 72500/3900 + 9.62 = 28.21
Thanks.
Sea Tea Sea Paste Sea Powder Final Sales Value (A) 90000 160000 85000 Sales Value at Split-Off (B) 60000 72500 70000 Sales Value after Further Processing (A-B) 30000 87500 15000 Less Additional Cost of Further Processing 35000 50000 14000 Incremental Benefit/Cost -5000 37500 1000
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