Products A, B, and C are produced from a single raw material input. The raw mate

Question

Products A, B, and C are produced from a single raw material input. The raw material costs $90,000, from which 5,000 units of A, 10,000 units of B, and 15,000 units of C can be produced each period. Product A can be sold at the split-off point for $2 per unit, or it can be processed further at a cost of $5,500 and then sold for $6 per unit. Product A should be:

A) sold at the split-off point, since further processing would result in a loss of $0.75 per unit.

B) processed further, since this will increase profits by $14,500 each period.

C) processed further, since this will increase profits by $5,500 each period.

D) sold at the split-off point, since further processing will result in a loss of $5,500 each period.

Explanation / Answer

Incremental revenue 20000 =5000*(6-2) Processing costs 5500 Incremental profit(loss) 14500 Processed further, since this will increase profits by $14,500 each period.

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