BioMorphs Corporation produces three products in a monthly joint production proc
ID: 2437050 • Letter: B
Question
BioMorphs Corporation produces three products in a monthly joint production process. During the first stage of the process liquids and chemicals costing $60,100 are heated and three different compounds emerge: 3,000 gallons of Molecue worth $22 per gallon are created from the steam; 10,000 gallons of Borphue worth $15 are drained from the tank; and 1,000 gallons of the tank residue, labeled as Polygard, are sold as fertilizer for $6.50 per gallon. Before Molecue is sold, it must be purified in another process that costs $10,400, and before the Polygard fertilizer is sold, it must be bottled at a price of $1.50 per gallon.
a. What is the profitability of the joint process?
b. Is it profitable to process Molecue further if it can be sold at split-off for $8 per gallon?
c. BioMorphs has an offer to buy Polygard bulk at the split-off point without bottling for $3,300 per month. What is the incremental profit (loss) to BioMorphs if it accepts the offer?
Explanation / Answer
(Figure in $) 1 Revenue Molecue 66,000 ($22.00 x 3,000) Borphue 150,000 ($15.00 x 10,000) Polygard 6,500 ($6.50 x 1,000) Total Revenue 222,500 Less: Cost Joint Cost 60,100 Molecue additional 10,400 Polygard additional 1,500 ($1.50 x 1,000) Total Cost 72,000 Total Profit 150,500 2 Incremental revenue to process further = $22 ? $8 = $14 per gallon × 3,000 gallons = $42,000. Compare to incremental cost to process further = $10,400. Incremental profit to process further is $31,600 3 Incremental revenue to process Polygard further = $6.50 × 1,000 – $3,300 = $3,200. Compare to incremental cost to process further = $1.50 × 1,000 = $1,500. Incremental loss if the company accepts the offer to sell at split-off is ($1,700).
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