The Gershwin Company operates a joint process. One of the products that results

Question

The Gershwin Company operates a joint process. One of the products that results from the joint process can either be sold immediately or processed further. The cost of processing further is $9919. Data for this product is as follows:

Sold Immediately

Processed Further

Quantity (kg.)

9480

8680

Selling price (per kg.)

$9

$15

What is the maximum amount of profit from this product that can be achieved?

The Gershwin Company operates a joint process. One of the products that results from the joint process can either be sold immediately or processed further. The cost of processing further is $9919. Data for this product is as follows:

Sold Immediately

Processed Further

Quantity (kg.)

9480

8680

Selling price (per kg.)

$9

$15

What is the maximum amount of profit from this product that can be achieved?

Explanation / Answer

Calculate maximum amount of product :

$34961 is the maximum amount of profit from this product that can be achieved.

Sales after further processing (8680*15) 130200 Sale at split off point (9480*9) 85320 Incremental revenue 44880 Incremental cost (9919) Incremental profit 34961

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