aterial input. Product The Hanna Company produces three products-A, B, and C-fro

Question

aterial input. Product The Hanna Company produces three products-A, B, and C-from a single raw m A can be sold at the split-off point for $40,000, or it can be processed further at a total cost of $15,000 and then sold for $58,000. Joint product costs total $60,000 annually. What is the correct course of action regarding Product A? a) It should be discontinued since revenues after further processing are less than total joint product costs. b) It should be sold at the split-off point. c) It should be processed further and then sold. d) It should be processed further only if its share of the total joint product costs is less than the incremental revenues from further processing.

Explanation / Answer

Incremental analysis of product A :

so answer is c) It should be processed further and then sold.

Sales revenue after further processing 58000 Sales revenue at split off point -40000 Incremental revenue 18000 Less: Incremental cost -15000 Incremental profit (loss) 3000

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